Last week, Moody struck out a second consecutive key rating of NYCB. This regulation may require the local lender to pay more to retain its deposits.
This period marks the bank’s all-time low, as its stocks have been in freefall for about a month and dove to 23% in early March.
One of the steps NYCB took to curtail the nosedive of its stocks was promoting Alessandro DiNello. DiNello has been a non-executive chairman of NYCB and only participated sketchily in the bank’s running. However, NYCB has now announced the promotion of DiNello to executive chairman to assist the CEO in bringing the bank out of the reds.
For a brief background, NYCB is the mother company of Flagstar Bank and is involved in several money investments across the states. Unfortunately, those investments have caught the flu, particularly its commercial real estate concerns. However, the bank is involved in diverse types of businesses across the nation, but most of its operations triangulate in New York.
NYCB is involved in mortgage sales, leasing warehouses, and even multi-family lending in New York City. However, the bank also operates 395 branches in nine other states. It doesn’t stop there, as NYCB also operates regional divisions that serve as administrative and routing heads for the various branches.
So, due to the recent loss of their deposit rating, NYCB may have to pad deposits to maintain the smooth running of operations. In early March, Moody’s Investors Service reduced NYCB’s deposit rating by two notches. This makes four notches down, from Baa2 to Ba3, in the past month. NYCB’s current deposit rating, Ba3, is below regulatory investment grade by three levels.
The inability of NYCB to maintain this investment grade is the prime reason for the plummet in the bank’s stock value. Likewise, many of the bank’s business clients may break ties, as some of them transact with NYCB based on contractual agreements. Some of these agreements include clauses that imply that NYCB needs to maintain investment grade if their affiliation is to remain valid.
Similarly, individual consumers of NYCB’s banking services may decide to move out their funds if they have substantial investments in their portfolio with the regional lender. Here is why. The FDIC can only refund customers to the tune of $250,000 if their affiliate bank happens to fail. So, the average customer with more than that cap of insured deposit would likely decide to play it safe.
NYCB stocks have experienced their steepest fall in the past three months. Between January and now, the bank’s stock has lost about 73% of its value, including a 23% decline in a single day. Presently, NYCB stock is worth a paltry $3 per unit. The bank’s new management has fingered some factors as responsible for the company’s dire condition.
The major culprit the DiNello-led management team identified is ineffective review methods for NYCB’s commercial loans. Investors and financial analysts are becoming wary of holding NYCB stocks. On February 5, just a day before Moody’s rating cut, the bank had declared $83 billion as its total deposit, with about three-quarters of those insured by FDIC.
Analysts are suggesting that the $83 billion must have tanked significantly since then due to deposit flight. The unraveling of events seems almost prophetic, as Keith Horowitz, a Citigroup analyst, harped on the eventualities of a downgrade in a February 4 research note. However, NYCB executives said Horowitz’s postulations are very unlikely to play out.
At the time of Horowitz’s predictions, Moody had pegged NYCB’s deposit rating to A3. So, NYCB executives confidently told Horowitz that the downgrade could not lower the deposit rating more than four notches. However, it has fallen six notches since then. Since then, NYCB has not responded to emails or calls from news outlets.
John Pinto is NYCB’s chief financial officer. During a February 7 virtual meeting, he mentioned that the bank’s deposit for mortgage escrow business has started fluctuating significantly. This suggests that the bank may need to borrow from the Federal Reserve to fund its balance sheet and cover deficits.