Troubled New York Community Bancorp (NYCB 7.45%) is reportedly scrambling to raise equity capital, and investors are scrambling for the exits. Shares of New York Community traded down 41% as of 12:45 p.m. ET as the bank’s already cloudy future grew murkier by the hour.
In the market for new equity financing?
It has been a rough start to 2024 for New York Community. The bank reported an unexpected loss in late January and slashed its dividend, part of what it called “decisive actions to build capital.”
The news has only gotten worse in the days since. Last week, New York Community ousted its CEO and said it has discovered issues in the way it tracks loan risk. The weakness is “related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities,” NYCB said in a regulatory filing.
New York Community claims to have its issues ring-fenced, and is beginning to rebuild its management team with an eye toward a less risky future. But confidence is everything in banking, and the company is apparently concerned enough to seek out additional capital.
The Wall Street Journal reported Wednesday that New York Community is gauging interest in its stock, hoping to raise enough capital to send a sign to markets, and its customers, that it will survive the crisis. At best an equity offering would dilute existing shareholders. At worst, it is a sign that the bank’s need for capital is more dire than investors believe.
Is New York Community a buy as it races to sell stock?
With Tuesday’s drop, New York Community is down more than 80% for the year. If the bank survives this mess, the current share price will likely in hindsight look like a bargain. However, there is no way to say with confidence that the bank will survive.
Even if New York Community does have its issues under control, it is only one run on deposits away from doom. We are coming up on the one-year anniversary of Silicon Valley Bank failing after it was unable to retain its deposits. It is unclear whether this talk of an equity raise will reassure depositors, or be the final straw that causes them to look to bank elsewhere.
The final chapter is not yet written for New York Community, but there is enough known right now to cause investors to stay away.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
