New York Community Bancorp is exploring the possibility of raising capital through the sale of mortgage-servicing rights, according to analysts at KBW. The move is seen as a way to strengthen the bank's balance sheet and address potential loan losses.
Capital Boost through Sale
The analysts at KBW, including Christopher McGratty, Bose George, and Alexander Bond, highlighted in a research note that New York Community Bancorp, with a portfolio of office properties and multifamily loans facing challenges, may need additional capital to meet regulatory requirements for banks with over $100 billion in assets. The bank currently holds $78 billion in unpaid balances of mortgage-servicing rights, valued at $1.1 billion.
Market Response
Following this news, New York Community Bancorp's stock demonstrated a rebound, rising nearly 4% in premarket trading after a significant decline of 23% in the previous session. The potential sale of mortgage-servicing rights could significantly impact the bank's common equity tier one (CET1) ratio, providing a boost of 10 to 15 basis points, an essential metric used by regulators to assess a bank's financial robustness.
Potential Buyers
KBW identified various potential buyers for New York Community Bancorp's Fannie Mae and Freddie Mac mortgage-servicing rights, including Mr. Cooper Group, Rithm Capital Corp, Annaly Capital Management Inc., Two Harbors Investment Corp., and specialized mortgage servicing rights funds. JPMorgan Chase & Co. was also noted for its past acquisitions of mortgage-servicing rights.
By considering this strategic move, New York Community Bancorp aims to navigate its current challenges effectively and reinforce its position in the market. Potential Buyers for New York Community Bancorp
According to KBW, financial companies like Annaly Capital Management and Two Harbors are the most likely buyers for New York Community Bancorp, as opposed to operating companies. These deals would allow the bank to retain its escrow deposits if it continues as a mortgage subservicer.
Maintaining Escrow Deposits
The key factor in retaining the escrow deposits lies in New York Community Bancorp keeping the subservicing on any mortgage servicing rights sold. KBW emphasized that most buyers are non-banks, making it crucial for the company to hold on to this aspect. However, if they opt to sell the entire servicing operation, holding on to the escrow deposits may prove to be more challenging.
Significant Mortgage Subservicing Operation
New York Community Bancorp boasts one of the largest mortgage subservicing portfolios in the U.S., encompassing over one million loans with outstanding balances totaling around $300 billion, as noted by KBW.
Financial Struggles and Stock Performance
The bank, which is the parent company of operating unit Flagstar, announced the need to reduce its dividend in late January to bolster capital reserves after becoming a Category IV bank due to its acquisition of Signature Bank in the previous year. Subsequently, New York Community Bancorp faced setbacks such as revealing "material weaknesses" in its accounting practices and delaying financial filings, contributing to a 73% stock decline since the beginning of the year, including a 23% dip on Monday.
Stay Informed: For insights on how the nine largest U.S. banks are managing their exposure to office real estate, refer to S&P's analysis.
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