One day after New York Community Bancorp purchased much of what remains of Signature Bank, questions swirled about whether the acquirer can retain what's left of the failed bank's deposit base.
The purchase agreement,
During a conference call Monday to discuss the deal, analysts pushed New York Community executives to explain how exactly they think they will be able to hang onto the newly acquired deposits and lure back some of the funds that have already fled, given the eye-popping deposit outflow in recent days.
New York Community said it is embracing Signature's private-client business model, which Thomas Cangemi, New York Community's president and CEO, characterized as "boots on the ground with white-glove service."
The "vast majority" of the remaining deposits are tied to private client groups, and of that majority, about 40% are tied to private-client groups' businesses and operating accounts, Cangemi noted.
"I think having stability, where we step in here, should bring some comfort," Cangemi said. "But, you know, there's no guarantee. We're going to work real hard … to make sure that clients understand that we're here for them, and we're here for the relationship managers, and they have an opportunity here" to bring back some of their deposits.
Still, several analysts wondered about the likelihood that New York Community will be able to retain Signature's deposits.
Execution on the retention and growth of Signature core deposit franchise "is not without its potential pitfalls and will be a key focus and concern for investors going forward," analyst David Rochester of Compass Point Research & Trading wrote in a research note.
The agreement between the FDIC and New York Community's banking subsidiary, Flagstar Bank, came a week after New York-based Signature was
The collapse of Signature was the third-largest bank failure in U.S. history, and it came just two days after the
Hicksville, New York-based New York Community completed its last acquisition — the
The deal for parts of Signature Bank includes one unusual twist: The FDIC will receive equity appreciation rights in New York Community common stock, with a potential value of up to $300 million, when shares rise above the "strike price" of $6.65 per share, the company said.
The FDIC did not immediately respond to questions about whether there's a vesting period for the rights, how long it plans to hold onto the rights, how it would cash out those rights and whether the rights are transferable.
The regulator has used warrants from time to time, dating back to at least 1984, when the FDIC acquired stock in Continental Illinois National Bank and Trust and sold the stock four years later, an FDIC spokesperson said in an email.
It's now in the government's best interest that New York Community does well, said Paul Davis, the director of market intelligence at Strategic Resource Management, a consulting firm.
Still, "the government isn't usually in the business of being a long-term bank investor, so the question is how long will it hold onto the equity appreciation rights," Davis said.
The actual purchase price is not yet clear, in part because the value of the FDIC's equity appreciation rights has yet to be determined.
The acquisition is expected to hasten New York Community's ongoing
The deal covers $38 billion of assets, including $13 billion of commercial and industrial loans and $25 billion of cash. New York Community plans to use the cash, which includes a $2.7 billion discount on acquired loans, to pay down "a substantial amount" of wholesale borrowings.
The additional commercial loans should help New York Community further diversify its loan book, which for decades has been heavily dominated by multifamily lending. The deal gives the bank entry into new business lines such as Small Business Administration lending, health care lending and middle-market specialty financing, and adds to existing specialties within mortgage warehouse lending.
Of the $34 billion of incoming deposits, a substantial portion is non-interest-bearing, which should aid in the bank's efforts to remix its funding base.
Adding those deposits to New York Community's existing balance sheet will reduce the company's loan-to-deposit ratio, a liquidity metric that measures total loans to total deposits, from 118% to 88%, according to New York Community. The new ratio is "in line with other commercial banks," Cangemi said.
The deal also includes Signature's wealth management and broker-dealer business and 40 branches, including 30 offices in the New York metropolitan area and several others in California.
Importantly, the deal excludes any of Signature's crypto-related deposits, which are said to total about $4 billion. The FDIC said that it expects Signature's failure to cost the Deposit Insurance Fund approximately $2.5 billion.
The deal announced Sunday also does not include any multifamily loans or commercial real estate loans, though New York Community is working on a deal to subservice those loans, Cangemi said.
As of Dec. 31, multifamily loans accounted for 55.3% of New York Community's loan book, while commercial real estate loans constitute 12.3%, according to the company's fourth-quarter earnings presentation.
On Monday, Cangemi pointed to a goal of diversifying away from such a heavy focus on multifamily lending. "We have to acknowledge how concentrated we are," he said.
Investors seemed to approve of the deal. Shares of New York Community surged more than 30% Monday after the announcement.
