What Will the Future Hold for New York Community Bancorp in 1 Year?

What Will the Future Hold for New York Community Bancorp in 1 Year?

Stock price of Community Bank of New York (NYSE: NYCB) have plunged about 75% from their 52-week highs. Most of the difficulties came in the last three months, following a terrible Q4 2023 earnings update.

It seems likely that the bank will be able to overcome the current difficulties with a little outside help. But how likely is it that NYCB will get back into shape over the next year?

New York Community Bancorp: Where has it gone? that comes from?

At the end of 2022, New York Community Bancorp acquired another bank. Then there was an eruption of Bank run in several regional banks in early 2023, which NYCB managed to get through largely unscathed. In fact, it even purchased assets from one of the banks that collapsed in a race that some might have seen as a sign of New York Community Bancorp’s strength.

Then it released its fourth quarter 2023 results.

What Will the Future Hold for New York Community Bancorp in 1 Year?

Image source: Getty Images.

Even though the headline of the earnings release said the bank delivered “record results,” the big news from the fourth-quarter update was a dividend cut. This decision is largely explained by the need to strengthen the financial position of the company. There were two reasons for this.

First, NYCB’s acquisitions amplified its scale and therefore increased the scrutiny it would face from banking regulators. Big banks should have stronger balance sheets. Second, the bank announced that it was having difficulty with some large loans. Specifically, net charge-offs increased to $185 million in the fourth quarter of 2023, compared to just $24 million in the third quarter.

And then things got Really lousy for New York Community Bancorp.

He effectively fired his CEO in a bizarre multi-step process, only to replace the new CEO a few weeks later. The announcement of the second CEO change was actually buried in a press release explaining that NYCB had received a billion-dollar cash infusion from outside investors. While all this was going on, the dividend was cut again to a token $0.01 per share per quarter. It’s no wonder Wall Street is pessimistic on stocks.

New York Community Bancorp has work to do

The good news in all the chaos at New York Community Bancorp is that it will likely survive the headwinds it currently faces. This is largely thanks to the billion-dollar cash injection it received. But that doesn’t mean the business is fixed, it just means the business has the financial wherewithal to deal with its problems. CEO Sandro DiNello summed it up quite well in the announcement announcing the completion of the financing transaction:

“The completion of this significant capital increase demonstrates the confidence that these strategic investors have expressed in the turnaround currently underway within the Company and allows us to implement our strategy from a position of strength. Our Company enters this next phase with an improved balance sheet and liquidity position. »

The only questionable statement is the use of the term “power position.” While New York Community Bancorp is certainly stronger than it was before the $1 billion infusion, the work is still a work in progress. It might be better to think of this as a “position of relative “strength” compared to the day before the financing agreement.

Managing the troubled loans described above is one of the major challenges it still faces. This will likely take some time, and there is always a risk that other loans will go bad. Investors should therefore pay close attention to the bank’s loan portfolio.

NYCB ChartNYCB Chart

NYCB Chart

But there is also another complicating factor, but it was filed in an SEC filing, not announced in a press release: “(A)s part of management’s evaluation of internal controls of the Company, management has identified material weaknesses in the Company’s internal controls related to internal loan review, resulting from ineffective monitoring, risk assessment and monitoring activities. This filing also announced that there would be some restatements and that the 2023 10-K would be filed late, which is generally not a good sign. Fixing internal control issues doesn’t happen overnight and may even require a complete overhaul of NYCB’s culture.

Fixable issues, but time-consuming fixes

Ultimately, New York Community Bancorp’s billion-dollar lifeline could very well have saved the bank. It is indeed much better placed to meet the challenges it faces during its transition from a small banking institution to a large banking institution.

But having more room to resolve problems does not mean being a strong, growing bank. It will likely take more than a year to get New York Community Bancorp back into shape. Even though the CEO calls this a turnaround situation, the stock is only suitable for the most aggressive investors willing to invest in the early days of this hoped-for return.

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Ruben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.

Where will New York Community Bancorp be in 1 year? was originally published by The Motley Fool

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