New York Community Bancorp (NYCB) PT Lowered to $4 at Morgan Stanley, 'unclear how much deposit runoff has occurred'

Morgan Stanley analyst Manan Gosalia lowered the price target on New York Community Bancorp (NYSE: NYCB) to $4.00 (from $6.00) while maintaining a Equalweight rating.

The analyst comments (emphasis SI) "Proposed transaction details. NYCB plans to raise $1.05 bil in the form of common stock at $2.00 and convertible preferred stock with an exercise price of $2.00. The company did not disclose the breakdown between common and preferred equity, but given that the stock closed today at $3.46 ,we assume that all of the preferred would be converted to common and model a share count increase of $1.05 bil / $2.00 = 525 mil shares. Investors also receive 60% warrant coverage to purchase common-equivalent stock, which are currently in the money at an exercise price of $2.50. Full exercise implies an incremental (525 mil shares x 60%) = 315 mil increase in share count, and we model a net issuance of 87 mil shares based on today's closing price of $3.46 (assuming NYCB issues shares to cover the warrant holders' net gain). All in, we estimate that the transaction would be 36% dilutive to TBVPS and 150bp accretive to CET1 ( Exhibit 1 ). The estimated $1.35 bil capital raise would be sufficient to cover an additional ~340bp cumulative loss rate on NYCB's combined multifamily and commercial real estate portfolio. Also as a result of the transaction, the company is bringing on several new Board members including Steven Mnuchin (former Secretary of the Treasury), Joseph Otting (former Comptroller of the Currency), Allen Puwalski from Hudson Bay, and Milton Berlinski from Reverence Capital. Joseph Otting will also become CEO of the bank. Impact to our estimates. We are reducing our 2024/2025 EPS from 21c/67c to (2)c/24c on higher share count and lower net interest income. Our 2024 net interest income estimate is down 8% versus our prior estimate to $2.3 bil assuming that non-interest bearing deposit runoff has accelerated during 1Q24 (down 15% Q/Q), which NYCB replaces with higher-cost FHLB and CDs. There is a wide range around these estimates, given the uncertainty around how deposits have trended since Feb 5. Cutting our Price Target to $4 from $6. We are reducing our Price Target to $4 from $6, applying a 0.6x multiple on pro forma TBVPS of $6.44, and remain Equal-weight. This reflects our 0.6x pre-deal target TBV + 1x the new capital raised, divided by the new share count. Why remain EW? Despite today's announcement there is still a wide range of potential outcomes from here for NYCB, depending on 1) The path of credit losses in multifamily and office; 2) The pace of any potential future loan sales and credit risk transfers which could weigh on NIM; 3) Any losses on potential loan sales that could weigh on CET1; and 4) The degree to which expenses can be cut given revenue headwinds and balance sheet shrinkage. We would also highlight that today's announcement did not include a deposit balance/mix update, so it is unclear how much deposit runoff has occurred since the bank delayed the filing of their 10-K."

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