New York Community Bancorp has found some defenders on Wall Street, even though its stock price has fallen by nearly half in the first two days of this week.
Shares fell after the bank reported an unexpected loss, cut its quarterly dividend and increased its loan loss reserves by $500 million.
JPMorgan analyst Stephen Alexopoulos said in a recommendation issued Thursday that the stock price drop was a dramatic overreaction.
“We intend to take advantage of this valuation and capitalize on this weakness to accumulate stock,” he wrote. “In addition to maintaining our overweight rating, NYCB remains a top contender for 2024.”
Alexopoulos said NYCB stock trades at 60% of tangible book value, five times projected 2025 earnings, and half the valuation of its regional peers. Friday’s closing price was $6.04, giving his price target 90% upside.
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Big and small bank stocks fell this week after NYCB’s disappointing results. But analysts said the bank’s move meant little for other regional banks. NYCB had increased its capital and liquidity levels to more than $100 billion in assets to accommodate the merger’s growth.
Raymond James analyst Steve Moss also sought to reassure investors in a note Friday after hosting a conference call with NYCB CEO Thomas Cangemi and other executives. . Mr Moss was reassured by the bank’s comments that deposits were very stable, he wrote.
Moss said NYCB’s loan loss reserves should be lower this year as a result of the announced reserve increases. He expects the bank’s net interest margin to narrow to 2.5% this year from 3% in 2023. But NYCB executives aim to return that margin to 3% after this year. Moss expects net income to be 92 cents per share in 2024 and $1.05 per share in 2025.
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Moss acknowledged that NYCB stock appears cheap at 60% of book value and 5.8 times 2025 earnings estimates. But he maintains his market perform rating, which he downgraded on Wednesday, believing investors have lowered their expectations for the company’s stock.
He is one of them. Moss upgraded his rating to “buy” a few weeks before the bank’s unfortunate news.
NYCB’s sudden shock also weighed on the stock prices of the nation’s largest banks, causing the KBW Nasdaq Bank Index to drop 5% at one point on Wednesday. This angered Oppenheimer’s Chris Kotofsky. Although he does not cover NYCB, he supports and recommends JPMorgan Chase.
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“Big banks look nothing like NYCB,” he wrote in a memo Friday.
Kotofsky concluded from a New York Central Bank presentation this week that about 73% of NYCB loans are real estate-related. Of the large banks he follows, only 12% of his loans are related to commercial real estate. Reserves for loan losses average 1.7%. Before the significant increase in reserves to 1.26%, NYCB’s reserves were only 0.72% of loans.
Kotowski writes that the U.S. banking industry is oddly fragmented compared to most countries, since interstate banking didn’t really begin until 1994. Too many small banks do not have diversified loan portfolios.
“The business model for small regional banks is absolutely broken,” Kotowski said. “The sooner small banks consolidate, the better for all of us.”
Email Bill Alpert at william.alpert@barrons.com.
