REUTERS
"Analysis: US banks hold $3.3 trillion cash amid banking crisis, slowdown worries"
By Saeed Azhar and Ann Saphir
September 5, 2023
NEW YORK/SAN FRANCISCO, Sept 5 (Reuters) - U.S. lenders are holding onto large piles of cash as insurance against a slowing economy, continuing deposit outflows and looming tougher liquidity rules that could particularly impact mid-sized banks.
The buildup is another example of a risk-averse approach from a sector still trying to regain its footing after a string of springtime bank failures, one which could result in restrained lending.
"This is a logical response to a slowing economy and particularly to a scenario, where you're seeing deposit outflows and you need to conserve cash," said David Fanger, senior vice president at Moody's rating agency.
"What happened in March was a big wake-up call."
The collapse of Silicon Valley Bank and Signature Bank in March triggered massive deposit withdrawals and placed renewed focus on lenders' financial health.
More recently, the sector was hit by ratings downgrades when S&P last month cut credit ratings and revised its outlook for multiple U.S. banks, following a similar move by Moody's.
Overall U.S. banks' cash assets were $3.26 trillion as of Aug. 23, up 5.4% from the end of 2022.
That was well above typical pre-pandemic levels, though down from the weeks immediately following the bank failures in March, Federal Reserve data shows.
Cash assets at small and mid-sized lenders are up 12% compared with the start of the year; at the nation's top 25 banks, cash holdings are up about 2.9%.
Large banks including JPMorgan and Bank of America declined to comment beyond the disclosures, but pointed to their executives' comments about reasons such as the Fed shrinking its balance sheet, falling deposits and higher short-term rates.
The SVB failure triggered a sudden dash for cash at banks, which within two weeks had bulked up cash assets to $3.49 trillion, the highest level since April 2022.
That has pulled back since then, but is still almost twice as high as pre-pandemic.
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Banks need higher cash levels to meet liabilities as customers withdraw deposits, and to offset risks such as loan losses as the Federal Reserve keeps interest rates high to cool economic growth and inflation.
"A lot of banks are taking steps to reduce risk and strengthen their balance sheets," said Brendan Browne, S&P's senior credit analyst for financial institutions.
Regional banks are shifting more "earning assets," such as those from lending activities, into cash or short-term securities, said Manan Gosalia, an analyst at Morgan Stanley, who covers regional banks.
"As banks see further pressure on deposit costs, and as they hold higher levels of liquidity, we expect loan growth will continue to slow as we get to the end of this year," he said.
S&P forecasts 2% loan growth this year, after an almost 9% gain last year.
STRICTER RULES
Mid-sized banks are also worried about upcoming regulations, analysts said.
U.S. regulators have said they will likely impose stricter capital and liquidity requirements on banks with $100 billion or more in assets.
Since March, regulatory focus has heightened, prompting banks to focus on key capabilities in liquidity and asset liability management, bankers and analysts said.
"Regulators are going to have a shorter fuse" for banks that have any gaps in managing their liquidity and the loans held on their books, said Peter Marshall, leader of EY's financial services liquidity advisory group.
The Fed's aggressive tightening since March 2022 put a lot of banks' longer-term securities under water, creating investor anxiety over the health of bank balance sheets.
Since then, banks are taking steps to boost liquidity by reducing investments in securities or selling them at a loss.
S&P estimated the value of these securities for FDIC-insured banks had more than $550 billion of unrealized losses on their available-for-sale and held-to-maturity securities as of June 30.
Bank of America said in a July presentation it sold $93 billion from the available-for-sale segment of the balance sheet in the first two quarters and added the proceeds to cash, which stood at $374 billion at the end of June, its second-quarter earnings data showed.
It further showed cash, which was deployed in money markets, was generating better returns than keeping it in low-yielding securities.
Bigger rival JPMorgan has been selling securities for the past year.
It has $420 billion in cash and $990 billion of what it calls high quality liquidity assets and other unencumbered securities, it said.
"The good news is for some of these banks re-investing cash is that we have pretty high short-term rates," said Mac Sykes, portfolio manager at Gabelli Funds.
"It's definitely opportunistic and advantageous to be investing short-term securities."
Reporting by Saeed Azhar and Ann Saphir; additional reporting by Niket Nishant; editing by Megan Davies, Nick Zieminski and Richard Chang
https://www.reuters.com/business/financ ... 023-09-05/
LEST WE FORGET THE LOOTERS
Re: LEST WE FORGET THE LOOTERS
REUTERS
"FDIC says it should have supervised First Republic more closely"
By Pete Schroeder
September 8, 2023
WASHINGTON, Sept 8 (Reuters) - The Federal Deposit Insurance Corp should have been more aggressive in policing First Republic Bank's risk management prior to its May failure, but it was unclear if that would have saved it given the speed with which depositors yanked their money, the agency said.
FDIC said in a report published Friday that a loss of market and depositor confidence ultimately sank the California-based lender, which was the second-largest bank to collapse in U.S. history.
It also laid blame at the feet of bank executives and its board, which it said ignored warning signs that interest rate risk was getting out of hand.
However, the FDIC added that its supervisors were too "generous" in gauging some of First Republic's risks, notably around interest rates and uninsured deposits.
Over a period when the bank doubled in size, the regulator found the time its supervisors actually spent at the lender declined, raising questions about how the agency allocated its staff.
"In retrospect, it does not appear that banks or banking regulators had sufficient appreciation for the risks that large concentrations of uninsured deposits could present in a social media-fueled liquidity event," the regulator wrote.
First Republic was the third bank to collapse in a matter of weeks, after a tumultuous period for the sector that began with the abrupt failure of Silicon Valley Bank in March.
First Republic was subsequently seized by the FDIC and most of its assets sold to JPMorgan Chase.
Friday's report echoed similar findings by regulators on the failures of SVB and New York-based Signature Bank and is likely to increase pressure on regulators to crack down on the industry.
The Federal Reserve said its supervisors did not escalate concerns quickly enough and did not provide enough resources.
Similarly, the FDIC found in its April post-mortem of the Signature failure that the agency lacked resources to properly supervise the bank as management pursued an overly aggressive growth strategy.
U.S. regulators have sought to tighten rules for larger banks, issuing several sweeping proposals aimed at bolstering lenders' ability to withstand economic shocks and continue lending.
But the banking industry and Republicans in Congress have called such efforts misguided, arguing tougher supervision of existing rules is needed, not new requirements - an argument some advocates of tighter regulation rebutted on Friday.
"Both regulation and supervision must be strengthened," said CEO Dennis Kelleher of Better Markets, a group favoring tougher regulation, in response to the report.
Reporting by Pete Schroeder; additional reporting by Douglas Gillison; Editing by Emelia Sithole-Matarise, Michelle Price and Cynthia Osterman
https://www.reuters.com/business/financ ... 023-09-08/
"FDIC says it should have supervised First Republic more closely"
By Pete Schroeder
September 8, 2023
WASHINGTON, Sept 8 (Reuters) - The Federal Deposit Insurance Corp should have been more aggressive in policing First Republic Bank's risk management prior to its May failure, but it was unclear if that would have saved it given the speed with which depositors yanked their money, the agency said.
FDIC said in a report published Friday that a loss of market and depositor confidence ultimately sank the California-based lender, which was the second-largest bank to collapse in U.S. history.
It also laid blame at the feet of bank executives and its board, which it said ignored warning signs that interest rate risk was getting out of hand.
However, the FDIC added that its supervisors were too "generous" in gauging some of First Republic's risks, notably around interest rates and uninsured deposits.
Over a period when the bank doubled in size, the regulator found the time its supervisors actually spent at the lender declined, raising questions about how the agency allocated its staff.
"In retrospect, it does not appear that banks or banking regulators had sufficient appreciation for the risks that large concentrations of uninsured deposits could present in a social media-fueled liquidity event," the regulator wrote.
First Republic was the third bank to collapse in a matter of weeks, after a tumultuous period for the sector that began with the abrupt failure of Silicon Valley Bank in March.
First Republic was subsequently seized by the FDIC and most of its assets sold to JPMorgan Chase.
Friday's report echoed similar findings by regulators on the failures of SVB and New York-based Signature Bank and is likely to increase pressure on regulators to crack down on the industry.
The Federal Reserve said its supervisors did not escalate concerns quickly enough and did not provide enough resources.
Similarly, the FDIC found in its April post-mortem of the Signature failure that the agency lacked resources to properly supervise the bank as management pursued an overly aggressive growth strategy.
U.S. regulators have sought to tighten rules for larger banks, issuing several sweeping proposals aimed at bolstering lenders' ability to withstand economic shocks and continue lending.
But the banking industry and Republicans in Congress have called such efforts misguided, arguing tougher supervision of existing rules is needed, not new requirements - an argument some advocates of tighter regulation rebutted on Friday.
"Both regulation and supervision must be strengthened," said CEO Dennis Kelleher of Better Markets, a group favoring tougher regulation, in response to the report.
Reporting by Pete Schroeder; additional reporting by Douglas Gillison; Editing by Emelia Sithole-Matarise, Michelle Price and Cynthia Osterman
https://www.reuters.com/business/financ ... 023-09-08/
Re: LEST WE FORGET THE LOOTERS
REUTERS
"Banks report continued pain on commercial real estate loans"
By Matt Tracy
OCTOBER 18, 2023
(Reuters) - A number of U.S. banks saw continued pain in the third quarter on delinquent commercial real estate (CRE) loans in their portfolios, as stress in the sector persists.
Building owners that borrowed money to finance their properties are being squeezed by high interest rates and vacant offices as workers opt to work from home.
Weak demand for offices could trigger a wave of borrowers to default on their loans and put pressure on banks and other lenders, which are hoping to avoid selling loans at significant discounts.
As a result, banks recorded continued provisions for credit losses and charge-offs from the previous quarter, driven by their non-performing (NPL), or delinquent, CRE loans.
“This is going to go on for at least a year, where NPLs continue to rise, followed by charge-offs - it’s going to be really ugly,” said Rebel Cole, a finance professor at Florida Atlantic University.
"I’m sure that banks are trying to avoid selling their worst properties because that’s going to force them to take a larger write-off, and because every property that’s sold becomes a comparable sale for the appraisers that value the properties.“
In its third quarter earnings release, Morgan Stanley noted it set aside $134 million for credit losses.
Similar to the $161 million it set aside in the second quarter, the bank noted this was due to “deteriorating conditions in the commercial real estate sector.”
Other banks’ earnings in the past week showed similar challenges facing CRE holdings.
On Tuesday, Goldman Sachs disclosed that it had reduced its exposure to office-related CRE holdings by roughly 50% this year.
Bank of America on Tuesday reported its non-performing loans, or those with at least 90 days of payments past due, increased to nearly $5 billion in the third quarter from $4.27 billion in the second quarter, due largely to its CRE portfolio.
Borrowers have struggled to refinance their CRE loans as property values have declined and interest costs have risen.
Some $20 billion of office commercial mortgage-backed securities, which bundle together individual loans, mature in 2023, according to real estate data provider Trepp.
Regulators have kept a close eye on banks’ CRE risk.
While bigger banks such as JPMorgan and Goldman Sachs have relatively less exposure to CRE, smaller regional banks have greater exposure that have posed challenges, according to research from JPMorgan and Citigroup.
Small banks hold 4.4 times more exposure to CRE loans than their larger peers, JPMorgan found earlier this year.
Citigroup found that regional or smaller lenders hold 70% of CRE loans.
“A lot of these big banks benefit from all of these different business lines,” said Mayra Rodriguez Valladares, a bank and capital markets risk consultant.
“Whereas once you start being regional and once you start being a community bank, there isn’t all of that business diversity.”
Wells Fargo saw an increase in net charge-offs on its CRE portfolio compared to previous quarters.
On Oct. 13, the bank reported $93 million in net CRE loan charge-offs, compared with $79 million in the second quarter and $17 million in the first.
In addition, the bank’s allowance for credit losses increased $333 million in the third quarter driven primarily by CRE.
It saw a $1.3 billion increase in its office CRE nonaccrual loans.
On Oct. 13, PNC reported its non-performing CRE loan balance more than doubled to $723 million in the third quarter from $350 million in the second quarter.
“While overall credit quality remains strong across our portfolio, the pressures we anticipated within the commercial real estate office sector have begun to materialize,” PNC Chief Financial Officer Robert Reilly told analysts.
Reporting by Matt Tracy; Editing by Lananh Nguyen and Jonathan Oatis
https://www.reuters.com/article/usa-pro ... SL1N3BI3LY
"Banks report continued pain on commercial real estate loans"
By Matt Tracy
OCTOBER 18, 2023
(Reuters) - A number of U.S. banks saw continued pain in the third quarter on delinquent commercial real estate (CRE) loans in their portfolios, as stress in the sector persists.
Building owners that borrowed money to finance their properties are being squeezed by high interest rates and vacant offices as workers opt to work from home.
Weak demand for offices could trigger a wave of borrowers to default on their loans and put pressure on banks and other lenders, which are hoping to avoid selling loans at significant discounts.
As a result, banks recorded continued provisions for credit losses and charge-offs from the previous quarter, driven by their non-performing (NPL), or delinquent, CRE loans.
“This is going to go on for at least a year, where NPLs continue to rise, followed by charge-offs - it’s going to be really ugly,” said Rebel Cole, a finance professor at Florida Atlantic University.
"I’m sure that banks are trying to avoid selling their worst properties because that’s going to force them to take a larger write-off, and because every property that’s sold becomes a comparable sale for the appraisers that value the properties.“
In its third quarter earnings release, Morgan Stanley noted it set aside $134 million for credit losses.
Similar to the $161 million it set aside in the second quarter, the bank noted this was due to “deteriorating conditions in the commercial real estate sector.”
Other banks’ earnings in the past week showed similar challenges facing CRE holdings.
On Tuesday, Goldman Sachs disclosed that it had reduced its exposure to office-related CRE holdings by roughly 50% this year.
Bank of America on Tuesday reported its non-performing loans, or those with at least 90 days of payments past due, increased to nearly $5 billion in the third quarter from $4.27 billion in the second quarter, due largely to its CRE portfolio.
Borrowers have struggled to refinance their CRE loans as property values have declined and interest costs have risen.
Some $20 billion of office commercial mortgage-backed securities, which bundle together individual loans, mature in 2023, according to real estate data provider Trepp.
Regulators have kept a close eye on banks’ CRE risk.
While bigger banks such as JPMorgan and Goldman Sachs have relatively less exposure to CRE, smaller regional banks have greater exposure that have posed challenges, according to research from JPMorgan and Citigroup.
Small banks hold 4.4 times more exposure to CRE loans than their larger peers, JPMorgan found earlier this year.
Citigroup found that regional or smaller lenders hold 70% of CRE loans.
“A lot of these big banks benefit from all of these different business lines,” said Mayra Rodriguez Valladares, a bank and capital markets risk consultant.
“Whereas once you start being regional and once you start being a community bank, there isn’t all of that business diversity.”
Wells Fargo saw an increase in net charge-offs on its CRE portfolio compared to previous quarters.
On Oct. 13, the bank reported $93 million in net CRE loan charge-offs, compared with $79 million in the second quarter and $17 million in the first.
In addition, the bank’s allowance for credit losses increased $333 million in the third quarter driven primarily by CRE.
It saw a $1.3 billion increase in its office CRE nonaccrual loans.
On Oct. 13, PNC reported its non-performing CRE loan balance more than doubled to $723 million in the third quarter from $350 million in the second quarter.
“While overall credit quality remains strong across our portfolio, the pressures we anticipated within the commercial real estate office sector have begun to materialize,” PNC Chief Financial Officer Robert Reilly told analysts.
Reporting by Matt Tracy; Editing by Lananh Nguyen and Jonathan Oatis
https://www.reuters.com/article/usa-pro ... SL1N3BI3LY
Re: LEST WE FORGET THE LOOTERS
REUTERS
"Flagging loan margins, one-off charges drag down profit at major US banks"
By Michelle Price, Saeed Azhar and Tatiana Bautzer
January 12, 2024
WASHINGTON, Jan 12 (Reuters) - Major U.S. banks reported lower profits on Friday in a choppy fourth quarter clouded by special charges and job cuts, with signs an income boost from high interest rates is waning and some consumer loans are starting to sour.
Still, the country's largest lenders JPMorgan, Wells Fargo, Bank of America, and Citigroup struck an upbeat tone on the economy, noting that American consumers remained resilient even as defaults on consumer loans began returning to pre-pandemic levels.
"This has been a period of credit normalization but the banks have been well ahead in terms of their reserves," said Mac Sykes, portfolio manager at Gabelli Funds, which holds shares in JPMorgan, Bank of America and Wells Fargo.
"The wild card will be how the economy tracks this year but the big banks are well situated to handle any stress."
The Federal Reserve hiked rates last year in a bid to tame inflation.
But with price increases slowing, the potential pace of interest rate cuts this year, and whether the economy will avoid a recession, are the key questions hanging over markets.
Jamie Dimon, CEO of JPMorgan Chase, the biggest U.S. bank and a bellwether for the economy, said consumers were still spending and that the markets were expecting a soft landing, but warned government spending could continue to push prices higher.
U.S. consumer prices increased more than expected in December, with Americans paying more for shelter and healthcare.
"This may lead inflation to be stickier and rates to be higher than markets expect," Dimon said.
He also warned Fed rate cuts could drain system liquidity, and that the wars in Ukraine and the Middle East could cause global disruptions.
"These significant and somewhat unprecedented forces cause us to remain cautious," he added.
Wells Fargo Chief Financial Officer Mike Santomassimo also said rate cuts created more market uncertainty than usual.
JPMorgan shares pared earlier gains and was down 0.27%. Citi gained 0.57%, while Bank of America fell 0.66% and Wells Fargo was down 3.09%.
The industry-wide S&P 500 index was down 0.98%.
The banks combined set aside more than $8 billion to refill the government's deposit insurance fund, which took a $16 billion hit after Silicon Valley Bank and two other lenders failed last year.
Citi, the most global U.S. bank which is in the throes of a huge reorganization, had a dismal quarter, swinging to a surprise $1.8 billion loss on the DIF charges and as it stockpiled cash to cover currency risks in Argentina and Russia.
Citi will cut 20,000 jobs over the next two years, its CFO Mark Mason said.
Wells Fargo, which has also been undergoing a turnaround to fix longstanding problems, reported a $969 million expense on job cuts, along with a $1.9 billion DIF charge.
Bank of America also cut jobs last year, it said, bringing total cuts for the three banks to 17,700 in 2023.
NII MIXED
Beyond one-off charges, the core revenue picture was mixed.
High rates last year boosted banks' net interest income (NII), the difference between what they earn from loans and pay to depositors, but that revenue driver looks to be flagging as the Fed pauses hikes, loan growth slows, and banks pay more to retain deposits.
Bank of America's profit more than halved on the DIF charge, a one-off hit on how it indexed some trades, and a 5% decline in its NII on higher deposit costs and as demand for loans stayed subdued amid high rates.
Of the four, Wells Fargo was the only lender to post a jump in profits, which rose 9% thanks to cost cuts, beating analyst expectations.
But NII fell 5%, and it warned that 2024 NII could be 7% to 9% lower than a year earlier due, in part, to lower rates and an expected decline in average loans.
JPMorgan also put in a strong performance.
Its quarterly profits fell 15%, but the Wall Street giant posted a record annual profit of $49.6 billion and a 19% jump in NII.
"My biggest worry is (did) the benefit of interest rates already occur?," David Wagner, portfolio manager at Aptus Capital Advisors, which holds the four banks, wrote in an email.
Investment banking was a bright spot, as the prospect of rate cuts has buoyed stock markets, and executives said deal pipelines looked robust.
BofA's investment banking fees were up 7%, while JPMorgan's climbed 13% on strong equity and debt underwriting.
Custody giant BNY Mellon also beat analyst estimates on strong interest revenue.
"We see some slowing in the U.S. economy potentially ahead, but not a recession," BNY Mellon CEO Robin Vince told reporters.
"To be able to pull off a perfect, immaculate landing without any other real repercussions in the economy...is a tough thing to do."
SOURING LOANS
All the lenders set aside more money to cover souring loans, and charge-offs - debts that are unlikely to be recovered - rose on some consumer loans.
Charge-offs at Bank of America - which has the biggest consumer bank - rose to $1.2 billion from $931 million in the third quarter, mainly from credit cards and office real estate.
Consumer delinquencies had declined during the pandemic, as government stimulus and lockdowns boosted consumer savings.
JPMorgan Chase CFO Jeremy Barnum said that the bank's consumer credit metrics, including credit cards, had returned to normal.
Citi said U.S. personal banking credit costs were rising due to "continued normalization" of non performing credit card loans.
Credit card loss rates are still below long run averages, according to ratings agency Fitch.
Some analysts, however, said they would like to see banks putting more cash aside in case credit trends worsen.
"I'm not super worried...but my preference is that banks build reserves in this environment," said Chris Marinac, director of research at financial adviser Janney Montgomery Scott.
Reporting by Niket Nishant, Mehnaz Yasmin, Noor Zainab Hussain and Manya Saini in Bengaluru; Carolina Mandl, Nupur Anand, Tatiana Bautzer, Saeed Azhar, Lance Tupper, Lananh Nguyen, and Chibuike Oguh in New York; Writing by Michelle Price; Editing by Nick Zieminski, Deepa Babington and Marguerita Choy
https://www.reuters.com/business/financ ... 024-01-12/
"Flagging loan margins, one-off charges drag down profit at major US banks"
By Michelle Price, Saeed Azhar and Tatiana Bautzer
January 12, 2024
WASHINGTON, Jan 12 (Reuters) - Major U.S. banks reported lower profits on Friday in a choppy fourth quarter clouded by special charges and job cuts, with signs an income boost from high interest rates is waning and some consumer loans are starting to sour.
Still, the country's largest lenders JPMorgan, Wells Fargo, Bank of America, and Citigroup struck an upbeat tone on the economy, noting that American consumers remained resilient even as defaults on consumer loans began returning to pre-pandemic levels.
"This has been a period of credit normalization but the banks have been well ahead in terms of their reserves," said Mac Sykes, portfolio manager at Gabelli Funds, which holds shares in JPMorgan, Bank of America and Wells Fargo.
"The wild card will be how the economy tracks this year but the big banks are well situated to handle any stress."
The Federal Reserve hiked rates last year in a bid to tame inflation.
But with price increases slowing, the potential pace of interest rate cuts this year, and whether the economy will avoid a recession, are the key questions hanging over markets.
Jamie Dimon, CEO of JPMorgan Chase, the biggest U.S. bank and a bellwether for the economy, said consumers were still spending and that the markets were expecting a soft landing, but warned government spending could continue to push prices higher.
U.S. consumer prices increased more than expected in December, with Americans paying more for shelter and healthcare.
"This may lead inflation to be stickier and rates to be higher than markets expect," Dimon said.
He also warned Fed rate cuts could drain system liquidity, and that the wars in Ukraine and the Middle East could cause global disruptions.
"These significant and somewhat unprecedented forces cause us to remain cautious," he added.
Wells Fargo Chief Financial Officer Mike Santomassimo also said rate cuts created more market uncertainty than usual.
JPMorgan shares pared earlier gains and was down 0.27%. Citi gained 0.57%, while Bank of America fell 0.66% and Wells Fargo was down 3.09%.
The industry-wide S&P 500 index was down 0.98%.
The banks combined set aside more than $8 billion to refill the government's deposit insurance fund, which took a $16 billion hit after Silicon Valley Bank and two other lenders failed last year.
Citi, the most global U.S. bank which is in the throes of a huge reorganization, had a dismal quarter, swinging to a surprise $1.8 billion loss on the DIF charges and as it stockpiled cash to cover currency risks in Argentina and Russia.
Citi will cut 20,000 jobs over the next two years, its CFO Mark Mason said.
Wells Fargo, which has also been undergoing a turnaround to fix longstanding problems, reported a $969 million expense on job cuts, along with a $1.9 billion DIF charge.
Bank of America also cut jobs last year, it said, bringing total cuts for the three banks to 17,700 in 2023.
NII MIXED
Beyond one-off charges, the core revenue picture was mixed.
High rates last year boosted banks' net interest income (NII), the difference between what they earn from loans and pay to depositors, but that revenue driver looks to be flagging as the Fed pauses hikes, loan growth slows, and banks pay more to retain deposits.
Bank of America's profit more than halved on the DIF charge, a one-off hit on how it indexed some trades, and a 5% decline in its NII on higher deposit costs and as demand for loans stayed subdued amid high rates.
Of the four, Wells Fargo was the only lender to post a jump in profits, which rose 9% thanks to cost cuts, beating analyst expectations.
But NII fell 5%, and it warned that 2024 NII could be 7% to 9% lower than a year earlier due, in part, to lower rates and an expected decline in average loans.
JPMorgan also put in a strong performance.
Its quarterly profits fell 15%, but the Wall Street giant posted a record annual profit of $49.6 billion and a 19% jump in NII.
"My biggest worry is (did) the benefit of interest rates already occur?," David Wagner, portfolio manager at Aptus Capital Advisors, which holds the four banks, wrote in an email.
Investment banking was a bright spot, as the prospect of rate cuts has buoyed stock markets, and executives said deal pipelines looked robust.
BofA's investment banking fees were up 7%, while JPMorgan's climbed 13% on strong equity and debt underwriting.
Custody giant BNY Mellon also beat analyst estimates on strong interest revenue.
"We see some slowing in the U.S. economy potentially ahead, but not a recession," BNY Mellon CEO Robin Vince told reporters.
"To be able to pull off a perfect, immaculate landing without any other real repercussions in the economy...is a tough thing to do."
SOURING LOANS
All the lenders set aside more money to cover souring loans, and charge-offs - debts that are unlikely to be recovered - rose on some consumer loans.
Charge-offs at Bank of America - which has the biggest consumer bank - rose to $1.2 billion from $931 million in the third quarter, mainly from credit cards and office real estate.
Consumer delinquencies had declined during the pandemic, as government stimulus and lockdowns boosted consumer savings.
JPMorgan Chase CFO Jeremy Barnum said that the bank's consumer credit metrics, including credit cards, had returned to normal.
Citi said U.S. personal banking credit costs were rising due to "continued normalization" of non performing credit card loans.
Credit card loss rates are still below long run averages, according to ratings agency Fitch.
Some analysts, however, said they would like to see banks putting more cash aside in case credit trends worsen.
"I'm not super worried...but my preference is that banks build reserves in this environment," said Chris Marinac, director of research at financial adviser Janney Montgomery Scott.
Reporting by Niket Nishant, Mehnaz Yasmin, Noor Zainab Hussain and Manya Saini in Bengaluru; Carolina Mandl, Nupur Anand, Tatiana Bautzer, Saeed Azhar, Lance Tupper, Lananh Nguyen, and Chibuike Oguh in New York; Writing by Michelle Price; Editing by Nick Zieminski, Deepa Babington and Marguerita Choy
https://www.reuters.com/business/financ ... 024-01-12/
Re: LEST WE FORGET THE LOOTERS
REUTERS
"Yellen concerned about US commercial real estate but says stresses manageable"
By David Lawder
February 6, 2024
WASHINGTON, Feb 6 (Reuters) - U.S. Treasury Secretary Janet Yellen on Tuesday said she is concerned about looming commercial real estate stresses on banks and property owners, but believes the situation is manageable with assistance from bank regulators.
Yellen told a House Financial Services Committee hearing that refinancings of commercial real estate loans coming due amid higher interest rates and high vacancies due to shifting work patterns "is going to put a lot of stress on the owners of these properties."
Some banks also may come under stress due to lower demand for commercial real estate following the COVID-19 pandemic that shifted more work to home offices, but banking supervisors were "very focused" on helping banks manage these risks.
"I'm concerned."
"I believe it's manageable, although there may be some institutions that are quite stressed by this problem," Yellen said.
The multi-regulator Financial Stability Oversight Council is focused on commercial real estate and bank supervisory agencies are working closely with banks on ways the institutions can work with borrowers that have problems.
"They're, in some cases, working to make sure that loan loss reserves are built up to cover losses, that dividend policies are appropriate, that liquidity is adequate," Yellen said of the bank regulators.
Nearly a year after the failures of specialist lenders Silicon Valley Bank and Signature Bank shook confidence in regional banks, a fresh sell-off hit the sector last week as New York Community Bancorp reported problems in its commercial real estate portfolio, a cautionary sign of potential pain ahead.
In the immediate aftermath of the SVB failure, Yellen said the Treasury would safeguard deposits at failing banks large and small that threatened financial contagion, but later clarified that Treasury had not considered "blanket insurance" for all deposits without approval from Congress.
Asked if she would do whatever is necessary to prevent a second wave of bank failures, Yellen declined comment on individual bank situations but added: "I would work with the banking supervisors to make sure that we addressed anything that looked like it could create systemic risk."
Reporting by David Lawder; Editing by Andrea Ricci and Mark Porter
https://www.reuters.com/business/yellen ... 024-02-06/
"Yellen concerned about US commercial real estate but says stresses manageable"
By David Lawder
February 6, 2024
WASHINGTON, Feb 6 (Reuters) - U.S. Treasury Secretary Janet Yellen on Tuesday said she is concerned about looming commercial real estate stresses on banks and property owners, but believes the situation is manageable with assistance from bank regulators.
Yellen told a House Financial Services Committee hearing that refinancings of commercial real estate loans coming due amid higher interest rates and high vacancies due to shifting work patterns "is going to put a lot of stress on the owners of these properties."
Some banks also may come under stress due to lower demand for commercial real estate following the COVID-19 pandemic that shifted more work to home offices, but banking supervisors were "very focused" on helping banks manage these risks.
"I'm concerned."
"I believe it's manageable, although there may be some institutions that are quite stressed by this problem," Yellen said.
The multi-regulator Financial Stability Oversight Council is focused on commercial real estate and bank supervisory agencies are working closely with banks on ways the institutions can work with borrowers that have problems.
"They're, in some cases, working to make sure that loan loss reserves are built up to cover losses, that dividend policies are appropriate, that liquidity is adequate," Yellen said of the bank regulators.
Nearly a year after the failures of specialist lenders Silicon Valley Bank and Signature Bank shook confidence in regional banks, a fresh sell-off hit the sector last week as New York Community Bancorp reported problems in its commercial real estate portfolio, a cautionary sign of potential pain ahead.
In the immediate aftermath of the SVB failure, Yellen said the Treasury would safeguard deposits at failing banks large and small that threatened financial contagion, but later clarified that Treasury had not considered "blanket insurance" for all deposits without approval from Congress.
Asked if she would do whatever is necessary to prevent a second wave of bank failures, Yellen declined comment on individual bank situations but added: "I would work with the banking supervisors to make sure that we addressed anything that looked like it could create systemic risk."
Reporting by David Lawder; Editing by Andrea Ricci and Mark Porter
https://www.reuters.com/business/yellen ... 024-02-06/
Re: LEST WE FORGET THE LOOTERS
REUTERS
"New York Community Bancorp stock value set to halve as slump extends"
By Niket Nishant and Saqib Iqbal Ahmed
February 6, 2024
Feb 6 (Reuters) - Shares of New York Community Bancorp dived 25% on Tuesday, extending a sell-off since the lender reported a surprise quarterly loss last week, and putting the stock on track to shed more than half of its value at the current levels.
The frenzied selling since Wednesday has also dragged down shares of peers on renewed fears about the health of the industry, which for months has been worried about exposure to the beleaguered commercial real estate (CRE) sector.
The bank last week set aside bigger-than-expected provisions for potential bad loans, chiefly due to its exposure to CRE where several borrowers are at risk due to high interest rates and low occupancies.
"There's a lot of anecdotal evidence that it's grim out there in CRE and indeed that may be getting even worse than folks are allowing people to know, at least in terms of office real estate," said Russell Hackmann, founder of Hackmann Wealth Partners.
U.S. Treasury Secretary Janet Yellen also acknowledged CRE concerns and said the Financial Stability Oversight Council, a body made up of multiple regulators, was focusing on the matter.
The KBW Regional Banking index dropped around 1.4% on Tuesday.
The index has been hit even as analysts highlighted that the issues at NYCB were specific to its balance sheet.
The lender's assets breached a $100 billion threshold after it purchased Signature Bank last year, subjecting it to stricter regulatory requirements and prompting a dividend cut to build capital.
The decision to make the cut came after mounting pressure from the Office of the Comptroller of the Currency (OCC), a top banking regulator, Bloomberg News reported, on Monday.
The lender's market value has fallen to about $3.5 billion since its earnings report, a far cry from its peak value of nearly $10 billion in August.
At least 13 brokerages have downgraded or lowered their price targets for the bank's stock since the earnings report.
Fitch also downgraded the bank's credit rating last week, citing the increased regulatory requirement that the agency said would curtail NYCB's "flexibility" as it focuses on building capital.
The size of provisions the bank took were also "outside of Fitch's baseline expectations," the ratings agency said.
On Tuesday, NYCB was sued by shareholders in a proposed class action for allegedly concealing deterioration in its loan portfolio.
The complaint was filed in Brooklyn federal court.
STIRS UP OPTIONS ACTIVITY
The slump in NYCB's stock has kickstarted heightened activity in the options market.
NYCB options were changing hands at 11 times their usual pace, according to Trade Alert data.
Put contracts, typically bought to express a bearish or defensive view, outnumbered calls, generally a bullish play, nearly 5-to-1, the data showed.
The bank's 30-day implied volatility - or how much traders expect the bank's shares to swing in the near term - rose to 170%, the highest in at least four years, Trade Alert said.
The broader Regional Banking exchange-traded fund (ETF) also drew heightened options activity, though at a more moderate level, suggesting investors were more focused on NYCB's prospects rather than on the broader regional banking sector.
The 30-day implied volatility for the ETF slipped to 33%, down about a point from the 3-month high touched on Wednesday, according to the data.
The plunge in NYCB's stock has enriched short sellers, investors who profit from a slide in stock prices.
Such investors have made roughly $159 million in paper profits on NYCB since it reported results, according to data from Ortex.
Reporting by Niket Nishant, Johann M Cherian, Manya Saini, Chibuike Oguh and Saqib Iqbal Ahmed; Editing by Sriraj Kalluvila, Shinjini Ganguli, Andrea Ricci and David Ljunggren
https://www.reuters.com/markets/us/new- ... 024-02-06/
"New York Community Bancorp stock value set to halve as slump extends"
By Niket Nishant and Saqib Iqbal Ahmed
February 6, 2024
Feb 6 (Reuters) - Shares of New York Community Bancorp dived 25% on Tuesday, extending a sell-off since the lender reported a surprise quarterly loss last week, and putting the stock on track to shed more than half of its value at the current levels.
The frenzied selling since Wednesday has also dragged down shares of peers on renewed fears about the health of the industry, which for months has been worried about exposure to the beleaguered commercial real estate (CRE) sector.
The bank last week set aside bigger-than-expected provisions for potential bad loans, chiefly due to its exposure to CRE where several borrowers are at risk due to high interest rates and low occupancies.
"There's a lot of anecdotal evidence that it's grim out there in CRE and indeed that may be getting even worse than folks are allowing people to know, at least in terms of office real estate," said Russell Hackmann, founder of Hackmann Wealth Partners.
U.S. Treasury Secretary Janet Yellen also acknowledged CRE concerns and said the Financial Stability Oversight Council, a body made up of multiple regulators, was focusing on the matter.
The KBW Regional Banking index dropped around 1.4% on Tuesday.
The index has been hit even as analysts highlighted that the issues at NYCB were specific to its balance sheet.
The lender's assets breached a $100 billion threshold after it purchased Signature Bank last year, subjecting it to stricter regulatory requirements and prompting a dividend cut to build capital.
The decision to make the cut came after mounting pressure from the Office of the Comptroller of the Currency (OCC), a top banking regulator, Bloomberg News reported, on Monday.
The lender's market value has fallen to about $3.5 billion since its earnings report, a far cry from its peak value of nearly $10 billion in August.
At least 13 brokerages have downgraded or lowered their price targets for the bank's stock since the earnings report.
Fitch also downgraded the bank's credit rating last week, citing the increased regulatory requirement that the agency said would curtail NYCB's "flexibility" as it focuses on building capital.
The size of provisions the bank took were also "outside of Fitch's baseline expectations," the ratings agency said.
On Tuesday, NYCB was sued by shareholders in a proposed class action for allegedly concealing deterioration in its loan portfolio.
The complaint was filed in Brooklyn federal court.
STIRS UP OPTIONS ACTIVITY
The slump in NYCB's stock has kickstarted heightened activity in the options market.
NYCB options were changing hands at 11 times their usual pace, according to Trade Alert data.
Put contracts, typically bought to express a bearish or defensive view, outnumbered calls, generally a bullish play, nearly 5-to-1, the data showed.
The bank's 30-day implied volatility - or how much traders expect the bank's shares to swing in the near term - rose to 170%, the highest in at least four years, Trade Alert said.
The broader Regional Banking exchange-traded fund (ETF) also drew heightened options activity, though at a more moderate level, suggesting investors were more focused on NYCB's prospects rather than on the broader regional banking sector.
The 30-day implied volatility for the ETF slipped to 33%, down about a point from the 3-month high touched on Wednesday, according to the data.
The plunge in NYCB's stock has enriched short sellers, investors who profit from a slide in stock prices.
Such investors have made roughly $159 million in paper profits on NYCB since it reported results, according to data from Ortex.
Reporting by Niket Nishant, Johann M Cherian, Manya Saini, Chibuike Oguh and Saqib Iqbal Ahmed; Editing by Sriraj Kalluvila, Shinjini Ganguli, Andrea Ricci and David Ljunggren
https://www.reuters.com/markets/us/new- ... 024-02-06/
Re: LEST WE FORGET THE LOOTERS
REUTERS
"Fed's Barr says supervisors more aggressive, honing in on interest rate risk"
By Pete Schroeder
February 16, 2024
WASHINGTON, Feb 16 (Reuters) - The Federal Reserve's top regulatory official said on Friday that bank supervisors are flagging problems at banks at a higher rate in the past year, and are conducting additional exams at firms facing large unrealized losses.
Fed Vice Chair for Supervision Michael Barr also said that bank examiners are "closely focused" on how firms are managing commercial real estate risk as that sector continues to face post-pandemic pressure.
Nearly one year after Silicon Valley Bank failed due in large part to hefty unrealized losses, Barr said the Fed has been focused on flagging potential problems at banks more quickly.
"The past year has been busy for Federal Reserve supervisors," he said in prepared remarks.
Reuters reported in December that federal bank supervisors had been stepping up their oversight of firms after several banks failed in the spring and issuing additional disciplinary actions to firms, including downgrading confidential bank health ratings.
Barr said the uptick in activity is not due to a change in policy, but rather reflects the changing economic and interest rate environment and what strains it can put on bank finances.
"We want and expect supervisors to help banks focus adequate attention on the areas that matter most for the particular bank," he said.
In addition to extra exams for firms grappling with unrealized losses, Barr said examiners are requiring those firms to take steps to address weaknesses and bolster their capital.
He added a small number of firms "with a risk profile that could result in funding pressures" are being continuously monitored.
He also added that different supervisory teams are heightening their coordination, particularly for regional firms that are nearing the $100 billion threshold, at which point they face stricter oversight.
Firms that are growing rapidly are facing more frequent assessments of their health and policies, as part of an effort to ensure they are ready to meet tougher requirements.
"The goal is that the transition to heightened supervision for fast-growing banks is more of a gradual slope and not a cliff," he said.
Those comments come as New York Community Bancorp saw its stock fall sharply in value after it posted an unexpected quarterly loss in January.
Bank executives said at the time part of the strain was heightened requirements they faced after recently exceeding $100 billion in assets.
Barr said the Fed is still weighing whether it should impose temporary higher capital and liquidity requirements on firms facing risk management issues.
Reporting by Pete Schroeder; Editing by Gareth Jones, Kirsten Donovan
https://www.reuters.com/markets/us/feds ... 024-02-16/
"Fed's Barr says supervisors more aggressive, honing in on interest rate risk"
By Pete Schroeder
February 16, 2024
WASHINGTON, Feb 16 (Reuters) - The Federal Reserve's top regulatory official said on Friday that bank supervisors are flagging problems at banks at a higher rate in the past year, and are conducting additional exams at firms facing large unrealized losses.
Fed Vice Chair for Supervision Michael Barr also said that bank examiners are "closely focused" on how firms are managing commercial real estate risk as that sector continues to face post-pandemic pressure.
Nearly one year after Silicon Valley Bank failed due in large part to hefty unrealized losses, Barr said the Fed has been focused on flagging potential problems at banks more quickly.
"The past year has been busy for Federal Reserve supervisors," he said in prepared remarks.
Reuters reported in December that federal bank supervisors had been stepping up their oversight of firms after several banks failed in the spring and issuing additional disciplinary actions to firms, including downgrading confidential bank health ratings.
Barr said the uptick in activity is not due to a change in policy, but rather reflects the changing economic and interest rate environment and what strains it can put on bank finances.
"We want and expect supervisors to help banks focus adequate attention on the areas that matter most for the particular bank," he said.
In addition to extra exams for firms grappling with unrealized losses, Barr said examiners are requiring those firms to take steps to address weaknesses and bolster their capital.
He added a small number of firms "with a risk profile that could result in funding pressures" are being continuously monitored.
He also added that different supervisory teams are heightening their coordination, particularly for regional firms that are nearing the $100 billion threshold, at which point they face stricter oversight.
Firms that are growing rapidly are facing more frequent assessments of their health and policies, as part of an effort to ensure they are ready to meet tougher requirements.
"The goal is that the transition to heightened supervision for fast-growing banks is more of a gradual slope and not a cliff," he said.
Those comments come as New York Community Bancorp saw its stock fall sharply in value after it posted an unexpected quarterly loss in January.
Bank executives said at the time part of the strain was heightened requirements they faced after recently exceeding $100 billion in assets.
Barr said the Fed is still weighing whether it should impose temporary higher capital and liquidity requirements on firms facing risk management issues.
Reporting by Pete Schroeder; Editing by Gareth Jones, Kirsten Donovan
https://www.reuters.com/markets/us/feds ... 024-02-16/
Re: LEST WE FORGET THE LOOTERS
CNBC
"Shares of NYCB fall 18% after bank discloses ‘internal controls’ issue, CEO change"
Jesse Pound @/IN/JESSE-POUND @JESSERPOUND
PUBLISHED THU, FEB 29 2024
KEY POINTS
* The regional bank announced that Alessandro DiNello, its executive chairman, is taking on the roles of president and CEO, effective immediately.
* NYCB has been under pressure in recent months due in part to concerns about its exposure to commercial real estate.
* The bank also announced an amendment to its fourth quarter results, adding a disclosure about its internal risk management.
Shares of New York Community Bancorp fell 18% in extended trading Thursday after the regional lender announced a leadership change and disclosed issues with its internal controls.
The regional bank announced that Alessandro DiNello, its executive chairman, is taking on the roles of president and CEO, effective immediately.
NYCB has been under pressure in recent months due in part to concerns about its exposure to commercial real estate.
Shares of NYCB dropped sharply in after hours trading.
The bank also announced an amendment to its fourth quarter results, adding a disclosure about its internal risk management.
“As part of management’s assessment of the Company’s internal controls, management identified material weaknesses in the Company’s internal controls related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities,” the company said in a filing with the U.S. Securities and Exchange Commission.
DiNello previously served as the CEO of Flagstar Bank, which NYCB acquired in 2022.
He was named executive chairman at NYCB earlier in February just after Moody’s Investors Service downgraded the bank’s credit rating to junk status.
“While we’ve faced recent challenges, we are confident in the direction of our bank and our ability to deliver for our customers, employees and shareholders in the long-term."
"The changes we’re making to our Board and leadership team are reflective of a new chapter that is underway,” DiNello said in a press release Thursday.
In another leadership change, Marshall Lux was elevated to presiding director of the NYCB board, replacing Hanif Dahya.
Lux served as global chief risk officer for Chase Consumer Bank at JP Morgan from 2007 to 2009, according to the press release.
Shares of NYCB are down 53% year to date, sparked by its disclosure on Jan. 31 that it took a larger-than-expected charge against potential loan losses.
The specter of loan losses reignited fears about the state of the commercial real estate market and regional banks more broadly.
Several regional banks failed in 2023 after customers and investors became uneasy about the value of the debt on bank balance sheets, including Silicon Valley Bank.
NYCB was actually the acquirer of one of those failed banks, Signature, in March of last year.
https://www.cnbc.com/2024/02/29/shares- ... hange.html
"Shares of NYCB fall 18% after bank discloses ‘internal controls’ issue, CEO change"
Jesse Pound @/IN/JESSE-POUND @JESSERPOUND
PUBLISHED THU, FEB 29 2024
KEY POINTS
* The regional bank announced that Alessandro DiNello, its executive chairman, is taking on the roles of president and CEO, effective immediately.
* NYCB has been under pressure in recent months due in part to concerns about its exposure to commercial real estate.
* The bank also announced an amendment to its fourth quarter results, adding a disclosure about its internal risk management.
Shares of New York Community Bancorp fell 18% in extended trading Thursday after the regional lender announced a leadership change and disclosed issues with its internal controls.
The regional bank announced that Alessandro DiNello, its executive chairman, is taking on the roles of president and CEO, effective immediately.
NYCB has been under pressure in recent months due in part to concerns about its exposure to commercial real estate.
Shares of NYCB dropped sharply in after hours trading.
The bank also announced an amendment to its fourth quarter results, adding a disclosure about its internal risk management.
“As part of management’s assessment of the Company’s internal controls, management identified material weaknesses in the Company’s internal controls related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities,” the company said in a filing with the U.S. Securities and Exchange Commission.
DiNello previously served as the CEO of Flagstar Bank, which NYCB acquired in 2022.
He was named executive chairman at NYCB earlier in February just after Moody’s Investors Service downgraded the bank’s credit rating to junk status.
“While we’ve faced recent challenges, we are confident in the direction of our bank and our ability to deliver for our customers, employees and shareholders in the long-term."
"The changes we’re making to our Board and leadership team are reflective of a new chapter that is underway,” DiNello said in a press release Thursday.
In another leadership change, Marshall Lux was elevated to presiding director of the NYCB board, replacing Hanif Dahya.
Lux served as global chief risk officer for Chase Consumer Bank at JP Morgan from 2007 to 2009, according to the press release.
Shares of NYCB are down 53% year to date, sparked by its disclosure on Jan. 31 that it took a larger-than-expected charge against potential loan losses.
The specter of loan losses reignited fears about the state of the commercial real estate market and regional banks more broadly.
Several regional banks failed in 2023 after customers and investors became uneasy about the value of the debt on bank balance sheets, including Silicon Valley Bank.
NYCB was actually the acquirer of one of those failed banks, Signature, in March of last year.
https://www.cnbc.com/2024/02/29/shares- ... hange.html
Re: LEST WE FORGET THE LOOTERS
REUTERS
"Insight: US regulators greenlit NYCB's rapid growth, even with red flags"
By Pete Schroeder, Michelle Price and Koh Gui Qing
March 7, 2024
WASHINGTON, March 7 (Reuters) - A U.S. banking regulator could have stopped New York Community Bank from pursuing a deal that has contributed to its financial woes.
Instead, they signed off on it.
The Office of the Comptroller of the Currency (OCC) approved NYCB's $2.6 billion merger with Michigan mortgage lender Flagstar Bank even though other regulators feared the deal could create problems at the New York bank, according to people with knowledge of the matter and public records.
When approving the deal, the OCC had concerns about NYCB's big exposure to the ailing commercial real estate (CRE) sector, but believed that the tie-up would help diversify its loan book, according to one person with knowledge of the matter.
The merger pushed the combined bank near a $100 billion regulatory threshold which imposes stiff capital rules.
The looming new requirements, along with the bank's CRE exposure, forced NYCB to slash its dividend in January, sending its shares diving and sparking credit downgrades.
Flagstar also had CRE exposure.
Reuters reported in May both banks were among the top five most exposed, when ranked by a regulatory concentration measure.
Regulators' deliberations reported here for the first time are surfacing a year after Silicon Valley Bank's implosion exposed areas of weak oversight and as policymakers debate the risks of bank mergers.
They help shed light on the missteps that contributed to NYCB's problems and are likely to increase pressure on regulators to be tougher on bank tie-ups.
Interviews with a dozen industry officials, merger experts and regulatory sources, as well as public documents, show how NYCB for years wanted to grow by pulling off a major deal, but when the Federal Deposit Insurance Corporation (FDIC) stood in its way the bank turned to the OCC.
The OCC greenlit the deal even though the FDIC had already privately vetoed the transaction over concerns about the banks' lending practices, according to two of the sources.
Additionally, the OCC disclosed when approving the deal that it was in the middle of an examination into potential discriminatory lending at Flagstar.
Reuters could not ascertain the outcome of that exam.
As a safeguard, the OCC imposed a special condition that required the bank to seek its written approval for future dividend payouts.
With NYCB, now fighting to shore up its balance sheet, approving the Flagstar deal looks to have been a miscalculation, say some regulatory and merger experts.
NYCB last week disclosed a far greater loss than previously stated as well as faults in its lending controls.
But on Wednesday, it said it had raised $1 billion from investors.
On Thursday, the bank disclosed that its deposits fell 7% during the last month and that it will outline a new business plan next month.
It said it has interest from buyers for some of its loans.
"If you've got a banking problem, the solution is not to make it bigger," said Dennis Kelleher, CEO of Washington advocacy group Better Markets that has analyzed the deal.
"The Flagstar-NYCB merger should never have been allowed...on the merits at the time."
A spokesperson for NYCB did not provide comment.
However, both banks filed a detailed merger application which the OCC spent several months reviewing, records show.
RAPID GROWTH, RAPID PAIN
Founded in 1859, NYCB for decades chugged along as a small lender focused on New York real estate.
But the bank wanted to accumulate deposits to generate more interest income, according to one person with direct knowledge of the matter who asked to remain anonymous discussing confidential information.
To grow deposits, former CEO Joseph Ficalora was set on deals, the person said, but his attempt at a transformative tie-up with Astoria Financial was scuttled by regulatory issues in 2016.
After Congress in 2018 relaxed rules for banks with between $50 billion and $250 billion in assets, it became easier to get bank deals done.
Then in April 2021, under CEO Thomas Cangemi, NYCB announced its big move: merging Flagstar into NYCB's New York subsidiary, creating a lender with $87 billion in assets.
Cangemi stepped down as CEO last month.
Ficalora and Cangemi did not respond to requests for comment.
The deal had issues from the start.
NYCB was supervised by the New York Department of Financial Services (NYDFS) and the FDIC.
Both regulators, as well as the Federal Reserve, had to review the deal.
NYDFS approved the deal in April 2022.
But officials at the FDIC had concerns about fair lending practices at Flagstar, and were also worried about the exposure of some of NYCB's multifamily loans, according to sources familiar with the matter.
FDIC officials decided they could not approve the deal, they said.
The sources declined to be identified discussing confidential regulatory information.
The FDIC's fair lending concerns were previously reported by media outlet The Capitol Forum.
Before the FDIC could formally block the deal, the banks announced in April 2022 they were restructuring the transaction so that NYCB would merge into Flagstar, which was regulated by the OCC.
A national OCC charter was appropriate, the banks said at the time.
As a result, the OCC and Federal Reserve had to review the deal, while the FDIC's approval was no longer necessary and the NYDFS would have no oversight of the new entity.
Flipping charters so late in the merger process is unusual, according to lawyers who also said the OCC had ample discretion to block the deal.
One of the sources said FDIC officials were angered by NYCB's move to shop the deal to the OCC.
But some OCC officials were concerned about NYCB's CRE exposure, and believed the deal could help diversify the bank, the source added.
For supervisors, diversification is a positive, said a different regulatory source.
The OCC approved the deal in October 2022.
The Federal Reserve approved it days later.
Months later, NYCB expanded further, buying assets from failed Signature Bank in a deal approved by the OCC and FDIC.
Combined, the Flagstar and Signature deals doubled NYCB's balance sheet to $116 billion.
Spokespeople from the NYDFS, the Fed and FDIC, declined to comment.
MERGER REVIEWS
One sign that the OCC had concerns about NYCB's CRE concentration was its condition in the approval notice that the new bank seek the agency's approval before paying dividends.
The OCC imposed those restrictions to ensure the bank had sufficient resources to address any supervisory issues that arose post-merger, said a regulatory source, echoing the OCC's explanation at the time.
While banks often have to seek some approvals around dividends, such explicit language struck some experts as noteworthy.
"The OCC is signaling in the order that it's got some potential concerns about integration," said Jeremy Kress, a University of Michigan professor who advised the Justice Department on its ongoing bank merger policy review.
Bank mergers have become a contentious issue in Washington as left-leaning Democrats push regulators, including the OCC, to take a tougher stance.
They say allowing banks to get bigger creates systemic risks and increases costs for borrowers.
That debate intensified after lenders including NYCB and JPMorgan were allowed to buy failed bank assets and as analysts expect more struggling banks to consolidate.
The OCC in January proposed overhauling its merger rules.
It is unclear if the NYCB-Flagstar deal would be approved under its planned changes which would subject deals whereby the combined entity has more than $50 billion in assets to additional scrutiny.
"The question is not should we or shouldn't we" allow mergers, Acting Comptroller Michael Hsu told Reuters in an interview about the OCC review on January 26.
"The question is, 'How do we get the best ones?"
Additional reporting by Hannah Lang, Douglas Gillison and Matt Tracy; editing by Megan Davies and Anna Driver
https://www.reuters.com/markets/us/us-r ... 024-03-07/
"Insight: US regulators greenlit NYCB's rapid growth, even with red flags"
By Pete Schroeder, Michelle Price and Koh Gui Qing
March 7, 2024
WASHINGTON, March 7 (Reuters) - A U.S. banking regulator could have stopped New York Community Bank from pursuing a deal that has contributed to its financial woes.
Instead, they signed off on it.
The Office of the Comptroller of the Currency (OCC) approved NYCB's $2.6 billion merger with Michigan mortgage lender Flagstar Bank even though other regulators feared the deal could create problems at the New York bank, according to people with knowledge of the matter and public records.
When approving the deal, the OCC had concerns about NYCB's big exposure to the ailing commercial real estate (CRE) sector, but believed that the tie-up would help diversify its loan book, according to one person with knowledge of the matter.
The merger pushed the combined bank near a $100 billion regulatory threshold which imposes stiff capital rules.
The looming new requirements, along with the bank's CRE exposure, forced NYCB to slash its dividend in January, sending its shares diving and sparking credit downgrades.
Flagstar also had CRE exposure.
Reuters reported in May both banks were among the top five most exposed, when ranked by a regulatory concentration measure.
Regulators' deliberations reported here for the first time are surfacing a year after Silicon Valley Bank's implosion exposed areas of weak oversight and as policymakers debate the risks of bank mergers.
They help shed light on the missteps that contributed to NYCB's problems and are likely to increase pressure on regulators to be tougher on bank tie-ups.
Interviews with a dozen industry officials, merger experts and regulatory sources, as well as public documents, show how NYCB for years wanted to grow by pulling off a major deal, but when the Federal Deposit Insurance Corporation (FDIC) stood in its way the bank turned to the OCC.
The OCC greenlit the deal even though the FDIC had already privately vetoed the transaction over concerns about the banks' lending practices, according to two of the sources.
Additionally, the OCC disclosed when approving the deal that it was in the middle of an examination into potential discriminatory lending at Flagstar.
Reuters could not ascertain the outcome of that exam.
As a safeguard, the OCC imposed a special condition that required the bank to seek its written approval for future dividend payouts.
With NYCB, now fighting to shore up its balance sheet, approving the Flagstar deal looks to have been a miscalculation, say some regulatory and merger experts.
NYCB last week disclosed a far greater loss than previously stated as well as faults in its lending controls.
But on Wednesday, it said it had raised $1 billion from investors.
On Thursday, the bank disclosed that its deposits fell 7% during the last month and that it will outline a new business plan next month.
It said it has interest from buyers for some of its loans.
"If you've got a banking problem, the solution is not to make it bigger," said Dennis Kelleher, CEO of Washington advocacy group Better Markets that has analyzed the deal.
"The Flagstar-NYCB merger should never have been allowed...on the merits at the time."
A spokesperson for NYCB did not provide comment.
However, both banks filed a detailed merger application which the OCC spent several months reviewing, records show.
RAPID GROWTH, RAPID PAIN
Founded in 1859, NYCB for decades chugged along as a small lender focused on New York real estate.
But the bank wanted to accumulate deposits to generate more interest income, according to one person with direct knowledge of the matter who asked to remain anonymous discussing confidential information.
To grow deposits, former CEO Joseph Ficalora was set on deals, the person said, but his attempt at a transformative tie-up with Astoria Financial was scuttled by regulatory issues in 2016.
After Congress in 2018 relaxed rules for banks with between $50 billion and $250 billion in assets, it became easier to get bank deals done.
Then in April 2021, under CEO Thomas Cangemi, NYCB announced its big move: merging Flagstar into NYCB's New York subsidiary, creating a lender with $87 billion in assets.
Cangemi stepped down as CEO last month.
Ficalora and Cangemi did not respond to requests for comment.
The deal had issues from the start.
NYCB was supervised by the New York Department of Financial Services (NYDFS) and the FDIC.
Both regulators, as well as the Federal Reserve, had to review the deal.
NYDFS approved the deal in April 2022.
But officials at the FDIC had concerns about fair lending practices at Flagstar, and were also worried about the exposure of some of NYCB's multifamily loans, according to sources familiar with the matter.
FDIC officials decided they could not approve the deal, they said.
The sources declined to be identified discussing confidential regulatory information.
The FDIC's fair lending concerns were previously reported by media outlet The Capitol Forum.
Before the FDIC could formally block the deal, the banks announced in April 2022 they were restructuring the transaction so that NYCB would merge into Flagstar, which was regulated by the OCC.
A national OCC charter was appropriate, the banks said at the time.
As a result, the OCC and Federal Reserve had to review the deal, while the FDIC's approval was no longer necessary and the NYDFS would have no oversight of the new entity.
Flipping charters so late in the merger process is unusual, according to lawyers who also said the OCC had ample discretion to block the deal.
One of the sources said FDIC officials were angered by NYCB's move to shop the deal to the OCC.
But some OCC officials were concerned about NYCB's CRE exposure, and believed the deal could help diversify the bank, the source added.
For supervisors, diversification is a positive, said a different regulatory source.
The OCC approved the deal in October 2022.
The Federal Reserve approved it days later.
Months later, NYCB expanded further, buying assets from failed Signature Bank in a deal approved by the OCC and FDIC.
Combined, the Flagstar and Signature deals doubled NYCB's balance sheet to $116 billion.
Spokespeople from the NYDFS, the Fed and FDIC, declined to comment.
MERGER REVIEWS
One sign that the OCC had concerns about NYCB's CRE concentration was its condition in the approval notice that the new bank seek the agency's approval before paying dividends.
The OCC imposed those restrictions to ensure the bank had sufficient resources to address any supervisory issues that arose post-merger, said a regulatory source, echoing the OCC's explanation at the time.
While banks often have to seek some approvals around dividends, such explicit language struck some experts as noteworthy.
"The OCC is signaling in the order that it's got some potential concerns about integration," said Jeremy Kress, a University of Michigan professor who advised the Justice Department on its ongoing bank merger policy review.
Bank mergers have become a contentious issue in Washington as left-leaning Democrats push regulators, including the OCC, to take a tougher stance.
They say allowing banks to get bigger creates systemic risks and increases costs for borrowers.
That debate intensified after lenders including NYCB and JPMorgan were allowed to buy failed bank assets and as analysts expect more struggling banks to consolidate.
The OCC in January proposed overhauling its merger rules.
It is unclear if the NYCB-Flagstar deal would be approved under its planned changes which would subject deals whereby the combined entity has more than $50 billion in assets to additional scrutiny.
"The question is not should we or shouldn't we" allow mergers, Acting Comptroller Michael Hsu told Reuters in an interview about the OCC review on January 26.
"The question is, 'How do we get the best ones?"
Additional reporting by Hannah Lang, Douglas Gillison and Matt Tracy; editing by Megan Davies and Anna Driver
https://www.reuters.com/markets/us/us-r ... 024-03-07/
Re: LEST WE FORGET THE LOOTERS
REUTERS
"US banks face loss risk from multi-family property loan exposure, says Fitch"
By Matt Tracy
March 27, 2024
WASHINGTON, March 27 (Reuters) - U.S. banks with significant lending exposure to some multi-family properties and particularly rent-controlled housing are vulnerable to posting losses this year on rising costs facing landlords, according to Fitch Ratings analysts.
On a Wednesday call, Fitch Ratings analysts highlighted the risks facing banks which have underwritten loans behind apartment complexes and other multifamily properties.
Lending by banks to multifamily borrowers grew 32% since 2020 to $613 billion at the end of 2023, according to a March 19 report by Fitch.
But supply has begun to outstrip demand, creating downward pressure on the rents landlords can charge, Fitch noted during Wednesday's call.
These landlords also face rising interest rates and insurance premiums, coupled with decreasing apartment values.
These factors have weighed on several regional banks with high exposure to the asset class, and in particular those most exposed to rent-controlled multifamily loans, where landlords face a ceiling on rent increases to offset rising costs.
"Especially in the more stringent rent-controlled areas, there is a limited ability to make up that difference," said Brian Thies, senior director at Fitch, on Wednesday's call.
"So I would say it can be a concern for loan performance at this point."
This was seen in late February, when regional bank New York Community Bancorp posted $2.7 billion in losses and a $552 million provision for credit losses in its fourth quarter, including on a New York-based rent-controlled multifamily loan.
Fitch highlighted 10 banks with the greatest multifamily loan exposure as of year-end 2023.
Flagstar Bank, which merged with New York Community Bancorp in 2022, topped the list with 43.6% of its loan portfolio in multifamily.
Other banks with a high proportion of multifamily loans include First Foundation Bank, Dime Community Bank, Pacific Premier Bank and Apple Bank for Savings, according to Fitch.
These and other banks are exposed to rent-controlled multifamily loan markets in states with stringent rent-control laws including California, New York, New Jersey and Oregon.
There were 49 banks at the end of 2023 with at least 5% of multifamily loans past due on their payments, the ratings agency noted.
Most of these consisted of regional and community banks.
The most capital-constrained banks will likely look to sell more of these loans - and at a loss, the Fitch analysts noted.
"We would consider most U.S. banks as well-reserved currently for multifamily lending," Thies said.
"But it's generally going to come down to the value of the collateral and how readily the bank can dispose of that."
Reporting by Matt Tracy; editing by Costas Pitas
https://www.reuters.com/business/financ ... 024-03-27/
"US banks face loss risk from multi-family property loan exposure, says Fitch"
By Matt Tracy
March 27, 2024
WASHINGTON, March 27 (Reuters) - U.S. banks with significant lending exposure to some multi-family properties and particularly rent-controlled housing are vulnerable to posting losses this year on rising costs facing landlords, according to Fitch Ratings analysts.
On a Wednesday call, Fitch Ratings analysts highlighted the risks facing banks which have underwritten loans behind apartment complexes and other multifamily properties.
Lending by banks to multifamily borrowers grew 32% since 2020 to $613 billion at the end of 2023, according to a March 19 report by Fitch.
But supply has begun to outstrip demand, creating downward pressure on the rents landlords can charge, Fitch noted during Wednesday's call.
These landlords also face rising interest rates and insurance premiums, coupled with decreasing apartment values.
These factors have weighed on several regional banks with high exposure to the asset class, and in particular those most exposed to rent-controlled multifamily loans, where landlords face a ceiling on rent increases to offset rising costs.
"Especially in the more stringent rent-controlled areas, there is a limited ability to make up that difference," said Brian Thies, senior director at Fitch, on Wednesday's call.
"So I would say it can be a concern for loan performance at this point."
This was seen in late February, when regional bank New York Community Bancorp posted $2.7 billion in losses and a $552 million provision for credit losses in its fourth quarter, including on a New York-based rent-controlled multifamily loan.
Fitch highlighted 10 banks with the greatest multifamily loan exposure as of year-end 2023.
Flagstar Bank, which merged with New York Community Bancorp in 2022, topped the list with 43.6% of its loan portfolio in multifamily.
Other banks with a high proportion of multifamily loans include First Foundation Bank, Dime Community Bank, Pacific Premier Bank and Apple Bank for Savings, according to Fitch.
These and other banks are exposed to rent-controlled multifamily loan markets in states with stringent rent-control laws including California, New York, New Jersey and Oregon.
There were 49 banks at the end of 2023 with at least 5% of multifamily loans past due on their payments, the ratings agency noted.
Most of these consisted of regional and community banks.
The most capital-constrained banks will likely look to sell more of these loans - and at a loss, the Fitch analysts noted.
"We would consider most U.S. banks as well-reserved currently for multifamily lending," Thies said.
"But it's generally going to come down to the value of the collateral and how readily the bank can dispose of that."
Reporting by Matt Tracy; editing by Costas Pitas
https://www.reuters.com/business/financ ... 024-03-27/