New York Community Bancorp (NYCB 0.60%) managed to take the 2023 bank run scare in relative stride. In fact, it even bought parts of Signature Bank, one of the banks that ended up going out of business. But New York Community Bancorp ran into problems as 2024 got underway, with the stock now down around 75% from its 52-week high. If you buy shares of this bank, you need to know these three key facts.
1. New York Community Bancorp is facing growing pains
One of the biggest problems facing New York Community Bancorp is that it inked two sizable acquisitions in a short period of time. The first was its late-2022 acquisition of Flagstar Bank. That happened right before the 2023 bank runs that upended a few high-profile regional banks.
NYSE: NYCB
Key Data Points
Those bank runs ultimately led to the next big acquisition, which included $34 billion of deposits, $13 billion of loans, and $25 billion of cash from Signature Bank. Signature Bank had been taken over by the FDIC at that point. These two transactions, in and of themselves, are not bad. In fact, they have resulted in New York Community Bancorp becoming a much more important bank.
The problem is that larger banks face increased regulatory scrutiny. New York Community Bancorp just wasn't prepared for more regulatory scrutiny, which requires it to carry additional capital buffers and have tighter internal controls. Those higher standards increase costs and, given the rapid acquisitions, necessitated a dividend cut to quickly boost its capital buffers.
2. New York Community Bancorp won't be fixed quickly
The problem for most investors is that implementing the controls that New York Community Bancorp needs takes time. While it is doing all of this, the bank is also dealing with a rising interest rate environment. That has put pressure on some of the bank's borrowers, leading to increased risk right when the bank is supposed to be working to reduce it.
In hindsight, the timing didn't work out so well for New York Community Bancorp's aggressive growth plans. But top management has been replaced and the bank is working on getting itself back into fighting shape. But even the new CEO is telling investors to be patient, stating in the company's first-quarter 2024 earnings release that: "While this year will be a transitional year for the Company, we have a clear path to profitability over the following two years. By the end of 2026, we target significantly higher profitability and higher capital levels, including a return on average earnings assets of 1%, a return on average tangible common equity of 11% to 12%, supported by a common equity tier 1 capital target in the range of 11% to 12%."
While it is nice to have a few yardsticks by which to judge the bank's performance, the end of 2026 is still a year and half away.
3. New York Community Bancorp will likely survive
It is a very bad sign when a bank cuts its dividend. And New York Community Bancorp has done so twice in 2024, now offering just a token $0.01 per share per quarter. That would normally be enough to keep all but the most aggressive investors away. However, the bank managed to get a cash infusion of roughly $1 billion. That should be enough capital to see the bank through its current headwinds.
The problem is that there's little reason for dividend investors to stick around given the miserly 1.1% dividend yield. Growth investors probably won't be interested because the company basically flubbed its expansion efforts. Value investors should be worried given the business's heightened risk because of the increased regulatory levels and troubled loans in a rising interest rate environment. That all basically leaves the stock in the turnaround zone, which is a highly specialized and highly risky investment approach.
Be prepared for a slow recovery
All told, if you buy New York Community Bancorp today, you are probably going to be sitting on dead money until the bank starts to show meaningful progress on its stated goals. And the stock probably won't find wider appeal among investors until it starts to raise its dividend again at some point in the future. Given the huge cash infusion, New York Community Bancorp is likely to survive the headwinds it faces, but that doesn't mean it will be a great investment option for most investors.
