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NYCB falls as profitability comes into focus after $5 billion loan sale

May 15, 2024 6:04 AM EDT

FILE PHOTO: A sign is pictured above a branch of the New York Community Bank in Yonkers, New York, U.S., January 31, 2024. REUTERS/Mike Segar/File Photo

By Niket Nishant and Manya Saini

(Reuters) -New York Community Bancorp's shares reversed course to trade down 4% as a deal to sell $5 billion of mortgage warehouse loans failed to assuage investors worried about the long road to profitability for the embattled lender.

The deal, already hinted by NYCB, with JPMorgan Chase on Tuesday bolsters its liquidity. However, concerns stemming from the bank's exposure to the under-pressure commercial real estate (CRE) still remained.

"This (warehouse lending) is arguably one of the more profitable businesses, in our view, and the path to a respectable return on tangible equity will continue to be a difficult," KBW analysts wrote a note.

Earlier this month, NYCB's new management team unveiled a plan to return to profitability next year after a turmoil sparked by a surprise quarterly loss in January wiped billions off its market value, led to a mass exodus of bankers and shrank its total deposits.

"Profitability is likely to be close to zero for the next 3-5 years," Raymond James analyst Steve Moss said.

NYCB has pledged to shrink its CRE lending footprint. CRE loans made up 16% of the bank's total at the end of the first quarter.

However, analysts have said NYCB will have to lure buyers for such loans with steep discounts.

Warehouse loans are lines of credit given to lenders who can use the funds to provide mortgages. They are repaid when the mortgage lender sells the loans to an investor.

Such loans accounted for 6%, or $5.2 billion, of NYCB's total $82.3 billion, as of March 31.

NYCB's shares were last down 4% at $3.74 on Wednesday after rising as much as 6% before the bell. The stock is down roughly 62% so far this year.

TALENT MIGRATION

NYCB's net interest margin will continue to face pressure due to deposit challenges, stemming from the departure of certain teams it acquired as part of its Signature Bank buyout, Raymond James wrote.

Nearly 200 bankers from its private and commercial banking teams have left, the bank's executives disclosed on an earnings call earlier this month.

NYCB will invest proceeds from the sale in cash and securities, it has said. It expects the deal to close in the third quarter.

(Reporting by Manya Saini and Niket Nishant in Bengaluru; Editing by Krishna Chandra Eluri and Sriraj Kalluvila)



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