Dive Brief:
- New York Community Bank has agreed to sell roughly $5 billion in mortgage warehouse loans to JPMorgan Chase, the Long Island-based lender said Tuesday in a release.
- NYCB CEO Joseph Otting telegraphed the move two weeks ago, during the bank’s first-quarter earnings call, saying the lender has “identified an opportunity” to sell $5 billion in assets and boost liquidity levels.
- The transaction is expected to finalize in the third quarter, once the banks complete due diligence and negotiate final documentation, NYCB said, without disclosing how much JPMorgan will pay for the assets.
Dive Insight:
The transaction comes after NYCB pledged to cut its commercial real estate exposure from $47 billion at the end of March to about $30 billion.
CRE exposure served as the root cause of a surprise $252 million loss the bank weathered in January, sending its share price into a tailspin and its then-CEO out the door.
NYCB’s stock had lost nearly 84% of its value between Jan. 31 and March 6, when a group of investors led by former Treasury Secretary Steven Mnuchin agreed to give the bank a $1.05 billion cash infusion and install Otting as CEO.
News of the asset sale to JPMorgan pushed the bank’s share price above $4 for the first time in nearly two months, according to Yahoo Finance. But NYCB’s stock is still down more than 60% since Jan. 31.
“Consistent with my guidance during our recent earnings call, we are moving forward quickly to implement our strategic plan, which focuses on improving our capital, liquidity and loan-to-deposit metrics,” Otting said Tuesday in a statement. “The mortgage business remains an important business for the company.”
Warehouse loans accounted for 6%, or $5.2 billion, of NYCB's $82.3 billion in loans as of March 31, according to Reuters.
“This is arguably one of the more profitable businesses, in our view, and the path to a respectable return on tangible equity will continue to be difficult,” Keefe, Bruyette & Woods analysts wrote.
Analysts at Jefferies noted the loan sale “is an important first step for management to restore credibility as the team looks to improve profitability.”
Brokerage Raymond James was less outwardly optimistic.
“Aggressive underwriting for multifamily and CRE loans will take an extended period to resolve, and ... the risks increase should rates continue to rise,” analysts wrote.
The transaction is set to boost NYCB’s common equity tier 1 capital ratio by 65 basis points to 10.8% pro forma, the bank said. NYCB will also reinvest the sale’s proceeds into cash and securities, increasing liquidity.
The move should improve NYCB’s ratio of cash and securities to total assets from 20% to 24%, and push its loan-to-deposit ratio to 104% from 110%, the bank said.
