The Federal Deposit Insurance Corp (FDIC) has confirmed that a subsidiary of New York Community Bancorp will be acquiring a significant portion of Signature Bank of New York, which was recently shut down by regulators. As a result of this news, the stock of New York Community Bancorp (NYSE: NYCB) experienced a significant surge in value.
Under the deal, beginning from Monday, all 40 branches of Signature Bank will be operated by Flagstar Bank, a subsidiary of New York Community Bancorp. The FDIC has assured that all deposits assumed by Flagstar will be insured up to the FDIC’s limit of $250,000.
However, Flagstar’s bid does not include the $4 billion worth of deposits related to Signature’s Digital banking business. The FDIC has made it clear that it will directly provide these deposits to the customers.
According to initial estimates from the FDIC, the failure of Signature Bank resulted in a cost of $2.5 billion to the Deposit Insurance Fund. The exact amount will be determined once Signature Bank exits receivership.
Even after the acquisition, the FDIC still holds approximately $60 billion worth of loans that were part of Signature’s portfolio, along with the $4 billion in deposits. Flagstar purchased around $38.4 billion worth of Signature’s assets, including $12.9 billion in loans, which were acquired at a discounted price of $10.2 billion (a 21% discount).
Financial analysts have lauded the deal, calling it a “sweetheart deal” for NYCB. David Chiaverini, an analyst at Wedbush, stated in a report that this acquisition presents an opportunity for “material” growth in earnings per share. He subsequently upgraded his rating on NYCB stock from Neutral to Outperform, while raising his target price from $10 to $11.
The market responded positively to this announcement, with New York Community Bancorp’s stock surging 41% to $9.23 on Monday morning. This rebound reflects a retracement of the recent slide, as the company’s stock had fallen from $9 to $5.81 due to concerns surrounding smaller banks.
New York Community Bancorp Receives FDIC Approval for Acquisition
The recent acquisition of Signature Bank by New York Community Bancorp (NYCB) has raised eyebrows in the financial industry. Analysts are interpreting this move as a strong vote of confidence from the Federal Deposit Insurance Corporation (FDIC) in NYCB’s financial stability.
According to Piper Sandler analyst Mark Fitzgibbon, who advised the FDIC during the deal, “The fact that NYCB is the buyer strikes us as sort of a good housekeeping seal of approval on NYCB.” This indicates that the FDIC would not have allowed NYCB to proceed with the transaction if they were not confident in the bank’s balance sheet.
Under the terms of the deal, the FDIC received stock appreciation rights in NYCB with a potential value of $300 million. Additionally, the agency provided $25 billion in cash to help NYCB pay off its own borrowings and improve liquidity by reducing its loan-to-deposit ratio from 118% to a healthy 88%.
The collapse of both Signature Bank and Silicon Valley Bank last week, due to a sudden run on deposits, has drawn attention to the vulnerability of certain banks’ customer bases. In the case of Silicon Valley Bank, its clientele consisted mainly of San Francisco-area venture capitalists and start-up founders, while Signature Bank served commercial real estate businesses, cryptocurrency companies, and even taxi drivers. These customer bases proved susceptible to quick flight during market contractions over the past year.
Interestingly, NYCB’s acquisition of Signature Bank comes after Keefe, Bruyette & Woods, a banking specialist, upgraded NYCB’s stock to Outperform following the announcement of the deal. Keefe, Bruyette analyst Christopher McGratty expects the transaction to increase NYCB’s earnings per share by a remarkable 70% and secure its dividend. In his analysis, McGratty suggests that this deal is too good to be true and establishes NYCB as a clear winner in the eyes of regulators.
In summary, NYCB’s acquisition of Signature Bank not only demonstrates the bank’s ability to navigate a downturn effectively but also garners approval from the FDIC. With the financial backing provided by the FDIC and the potential benefits outlined by analysts, NYCB is positioned to emerge as a stronger player in the banking industry.
