The New York Community Bancorp (NYSE:NYCB) discounted fundraise affords the regional lender "breathing room" and the time to engineer a turnaround, says Bank of America, with a new team of "turnaround experts" in charge.
Comments made by BofA analysts follow the $1.05 billion equity injection in NYCB from an investor consortium led by former US Treasury Secretary Steven Mnuchin and his Liberty Strategic Capital, which is investing almost half the promised capital.
Keeping its 'neutral' rating and $5 price objective, compared to the $3.46 last close price and the $2 share price at which the consortium agreed to invest, BofA first noted the turnaround expertise of the new management team, which includes Mnuchin on the board and former Trump administration Treasury colleague Joseph Otting appointed CEO.
BofA analysts pointed out that Mnuchin and Otting worked together on the turnaround of failed bank IndyMac, which was rebranded as OneWest and eventually sold to CIT post the global financial crisis.
"We calculate a pro-forma [tangible book value] per share in the $5.50-$6 range to reflect the equity injection", the analysts said in a note to clients, versus $10 at the end of the 2023 fiscal year.
"We believe that the capital injection combined with the credibility of the investor base in the financial services and real estate (important given NYCB's CRE exposure) sectors should offer mgmt. the time and flexibility to engineer a turnaround," the analysts said.
"The actions should alleviate investor concerns about NYCB's ability to navigate the current crisis."
The focus is now likely to shift to the core earnings per share and return on equity power of the franchise, management's first update on the credit outlook for its NYC rent stabilized multi-family loan book and how it plans to reduce this exposure.
"Additionally, investors will be looking for an update on deposit pricing / net interest income outlook to assess the impact from the ~50% stock sell-off since 01/31, ratings agency downgrades on depositor behavior."
An investor call was held this morning.
The $1 billion investment in capital equates to around 100 basis points improvement to the CET1 capital ratio, it was noted, with the investors to receive 60% warrants coverage to purchase common-equivalent stock with an exercise price of $2.50, implying potential dilution of around 250 million more shares, nut but it was unclear when these can be exercised.
The transaction is expected to close March 11.