Written by Manya Saini and Niket Nishant
(Reuters) – New York Community Bancorp's commercial real estate portfolio's efforts to increase provisions for potential bad debts come as analysts expect profits to remain under pressure. , New York Community Bancorp's turnaround is likely to take a long time.
This week's $1.05 billion financing helped stem the collapse in the company's stock price and ease short-term concerns, but its exposure to New York's rent-controlled apartment complexes (apartments with four or more units) It still stands out.
Six graphics capture troubles at banks:
CRE concentration
Multifamily loans, which have been NYCB's primary focus for 50 years, accounted for 44% of its $84.6 billion portfolio as of Dec. 31. Almost 8.3% of these loans are “criticized,” meaning the bank is at high risk of default. It was revealed in January.
“While we are somewhat encouraged that overall credit quality trends are likely to remain manageable in the near term, we believe that the company's focus on the adequacy of reserve levels is I hope that it will be seriously considered.”
Multifamily portfolios include properties subject to rent control regulations, which limit landlords' freedom to raise rents at a time when borrowing rates remain high.
Office loans accounted for 4% of the total portfolio, according to NYCB. More than half of its office portfolio is in Manhattan, where the vacancy rate is 15%, according to Moody's.
Allowance for doubtful accounts
The bank's allowance for credit losses more than quadrupled in the fourth quarter from a year earlier to $552 million. But analysts say more reserves will be needed to cover further loan deterioration, particularly CRE risks.
Raymond James analyst Stephen Moss said NYCB's current loan loss reserve ratio (a measure of reserves to total loans) to CRE appears low at 1.4%. The median ratio among peers is 2.48%, he added.
The key question now is whether this week's funding will be enough to “overcome challenges within the loan portfolio that lie ahead,” JPMorgan's Stephen Alexopoulos, who covers New York CB, said in a note. .
Deposit outflow amount
NYCB revealed this week that it lost $5.8 billion, or 7% of its deposits, last month. Analysts said the bank's recent woes, including a large and unexpected goodwill impairment, could also lead to higher deposit costs and narrower net interest margins.
Still, NYCB's uninsured deposits are relatively low at nearly 20%. DA Davidson analyst Peter Winter said the 7% drop in deposits was smaller than expected “given all the disruption and multiple credit rating downgrades”.
By contrast, Silicon Valley Bank and two other banks that failed last year had higher levels of uninsured deposits.
stock price performance
NYCB's stock price plummeted, losing nearly two-thirds of its value following the bank's disastrous January 31 earnings report and a 70% cut in its dividend. It fell another 5% on Friday.
Weak investor sentiment also hurt the KBW Regional Bank Index, which fell 7.3% over the same period.
Raymond James' Moss said the stock is likely to remain around current levels until investors get more clarity on the state of the bank's multifamily loan book.
(Reporting by Manya Saini and Niket Nishant in Bengaluru; Editing by Michelle Price)
