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New York Community (NYCB) Explores Selling Residential Mortgages
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New York Community Bancorp, Inc. (NYCB - Free Report) is exploring the option of selling its portfolio of residential loans in order to reduce its mortgage risk amid mounting troubles. Per a Bloomberg report, citing people familiar with the matter, the company is seeking third-party capital for a portfolio of residential mortgages held under its Flagstar Bank unit.
The company may opt for a synthetic risk transfer, backed by a portfolio of $5 billion of home loans originated when interest rates were lower. Notably, in synthetic securitization, banks reduce their exposure to loans by effectively transferring the risk of the assets to the buyer.
According to some other people, NYCB is also exploring the sale of a roughly $1-billion portfolio of recreational vehicle and marine loans. However, the talks are preliminary and details could change.
The above-mentioned talks were already in progress before the firm shocked shareholders a few days ago by posting unexpected commercial real estate (CRE) loan losses and announcing a 71% cut in its quarterly dividend.
Last week, NYCB, which acquired parts of failed Signature Bank in early 2023, set aside bigger-than-expected provisions for potential bad loans mainly due to its CRE exposure.
After the bank posted the unexpected huge fourth-quarter loss, there was a significant drop in faith regarding its ability to repay debt holders. Shares of the company have declined to their lowest level in the past 27 years.
Currently, NYCB has been facing multi-layered financial risks and governance challenges.
While the bank has said that it is building capital to deal with the stricter regulatory requirements that came after the purchase of Signature Bank lifted its assets above a $100-billion threshold, CRE is an area wherein borrowers are at increased risk due to high interest rates and low occupancies.
Because of the issues relating to its credit quality, NYCB’s credit grade has been downgraded to junk by Moody’s Investors Service, a division of Moody’s Corporation (MCO - Free Report) , a couple of days ago. This follows a downgrade by Fitch Ratings.
NYCB’s long-term issuer rating has been downgraded two notches below investment grade to Ba2. Moody’s has said that the company’s ratings could be downgraded further if conditions deteriorate.
Moody’s has decided to focus on the outlook for NYCB’s CRE portfolio, earnings, capitalization and use of wholesale funding as it weighs whether to cut grades again. MCO will further assess governance, including risk and balance sheet management.
Thus, in order to reassure investors that NYCB’s financial position is strong, the company’s newly appointed executive chairman, Alessandro DiNello, has said that the firm will do whatever is required to build capital, including selling assets like loans, and will reduce its CRE concentration at the earliest.
Over the past six months, NYCB shares have lost 67.7% compared with the industry’s 14.8% decline.
Image Source: Zacks Investment Research
Currently, NYCB carries a Zacks Rank #5 (Strong Sell).
In October 2023, Moody’s affirmed the investment grade credit and corporate rating of Baa3 for Hercules Capital, Inc. (HTGC - Free Report) . HTGC’s outlook was also affirmed at stable.
Seth Meyer, the chief financial officer of HTGC, stated, “We are very pleased that Moody’s has reaffirmed our Baa3 investment grade credit and corporate rating. This rating reflects our differentiated and diversified venture and growth stage lending and commitment to disciplined underwriting, as well as the scale of our institutionalized lending platform.”
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New York Community (NYCB) Explores Selling Residential Mortgages
New York Community Bancorp, Inc. (NYCB - Free Report) is exploring the option of selling its portfolio of residential loans in order to reduce its mortgage risk amid mounting troubles. Per a Bloomberg report, citing people familiar with the matter, the company is seeking third-party capital for a portfolio of residential mortgages held under its Flagstar Bank unit.
The company may opt for a synthetic risk transfer, backed by a portfolio of $5 billion of home loans originated when interest rates were lower. Notably, in synthetic securitization, banks reduce their exposure to loans by effectively transferring the risk of the assets to the buyer.
According to some other people, NYCB is also exploring the sale of a roughly $1-billion portfolio of recreational vehicle and marine loans. However, the talks are preliminary and details could change.
The above-mentioned talks were already in progress before the firm shocked shareholders a few days ago by posting unexpected commercial real estate (CRE) loan losses and announcing a 71% cut in its quarterly dividend.
Last week, NYCB, which acquired parts of failed Signature Bank in early 2023, set aside bigger-than-expected provisions for potential bad loans mainly due to its CRE exposure.
After the bank posted the unexpected huge fourth-quarter loss, there was a significant drop in faith regarding its ability to repay debt holders. Shares of the company have declined to their lowest level in the past 27 years.
Currently, NYCB has been facing multi-layered financial risks and governance challenges.
While the bank has said that it is building capital to deal with the stricter regulatory requirements that came after the purchase of Signature Bank lifted its assets above a $100-billion threshold, CRE is an area wherein borrowers are at increased risk due to high interest rates and low occupancies.
Because of the issues relating to its credit quality, NYCB’s credit grade has been downgraded to junk by Moody’s Investors Service, a division of Moody’s Corporation (MCO - Free Report) , a couple of days ago. This follows a downgrade by Fitch Ratings.
NYCB’s long-term issuer rating has been downgraded two notches below investment grade to Ba2. Moody’s has said that the company’s ratings could be downgraded further if conditions deteriorate.
Moody’s has decided to focus on the outlook for NYCB’s CRE portfolio, earnings, capitalization and use of wholesale funding as it weighs whether to cut grades again. MCO will further assess governance, including risk and balance sheet management.
Thus, in order to reassure investors that NYCB’s financial position is strong, the company’s newly appointed executive chairman, Alessandro DiNello, has said that the firm will do whatever is required to build capital, including selling assets like loans, and will reduce its CRE concentration at the earliest.
Over the past six months, NYCB shares have lost 67.7% compared with the industry’s 14.8% decline.
Image Source: Zacks Investment Research
Currently, NYCB carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Rating Action by Moody’s on Another Finance Firm
In October 2023, Moody’s affirmed the investment grade credit and corporate rating of Baa3 for Hercules Capital, Inc. (HTGC - Free Report) . HTGC’s outlook was also affirmed at stable.
Seth Meyer, the chief financial officer of HTGC, stated, “We are very pleased that Moody’s has reaffirmed our Baa3 investment grade credit and corporate rating. This rating reflects our differentiated and diversified venture and growth stage lending and commitment to disciplined underwriting, as well as the scale of our institutionalized lending platform.”