Management of New York Community Bancorp (NYCB -4.97%) has accomplished a lot in a short amount of time to help solidify the future of this troubled regional lender. But the work has come at a great cost to existing investors.
Shares of New York Community Bancorp traded down 2% as of noon ET as investors digest a busy few days in the history of NYCB.
A very costly lifeline
Banking tends to be a confidence game, and there was real reason to worry that depositors had lost confidence in New York Community and began stampeding for the exits as recently as last week. Earlier this year, the bank announced it was slashing its dividend and taking “decisive actions” to build capital, and it has since overhauled management and launched a probe into how it assessed risk.
A lot of the bank’s near-term issues were put to rest thanks to a $1.05 billion cash infusion and the appointment of a new management team, news that caused the stock to bounce off its lows. But that that equity deal devalued existing stock by upward of 50%, a reflection of NYCB’s dire predicament.
On Monday, Keefe Bruyette cut the stock’s price target to $3.75 from $7.50, citing the “significant and very expensive” capital raise and predicting the stock will be “range bound” through 2024 at least. J.P. Morgan withdrew its price target but kept a neutral rating on the shares, warning “the door will remain open” in terms of additional capital raises.
Is New York Community Bancorp stock a buy?
The equity infusion improved the odds that New York Community will survive but did little to help existing holders. If all goes well from here the bank will likely be worth significantly more in the future than it is now, meaning that this should be a buying opportunity. However, given the uncertainty and the drawn-out timetable for a recovery there is no reason for investors to rush in. The caution from analysts seems prudent.
In the coming weeks, the new management team will lay out its vision for the future of New York Community and investors will have time to see how depositors have reacted to all this uncertainty and whether the equity infusion has succeeded in plugging all capital holes. Given what has happened so far, it is wise to allow this story to play out more before diving in.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
