New York Community Bancorp may be able to raise capital to strengthen its balance sheet and cover potential loan losses by selling mortgage-servicing rights, analysts at KBW said on Tuesday.
New York Community Bancorp’s stock
NYCB,
was up by 10% Tuesday, after dropping 23% in the previous session.
With it stock price tumbling in recent weeks and a portfolio of office properties and multifamily loans under stress, New York Community Bancorp
NYCB,
potentially needs to raise more capital to meet regulatory balance sheet requirements for banks with $100 billion or more of assets.
KBW analysts Christopher McGratty, Bose George and Alexander Bond said in a late Monday research note that the bank could tap into its $78 billion in unpaid balances of mortgage-servicing rights to raise capital through a potential sale. The portfolio has a carrying value of $1.1 billion, analysts said.
New York Community Bancorp’s stock was up by nearly 4% in premarket trading on Tuesday, after dropping 23% in the previous session.
KBW analysts estimated that the sale of the mortgage-servicing rights could boost the bank’s common equity tier one (CET1) ratio by 10 to 15 basis points. The CET1 ratio is one key measure regulators use to weigh a bank’s liquidity and strength to face potential challenges.
KBW lists potential buyers of the New York Community Bancorp’s Fannie Mae and Freddie Mac mortgage-servicing rights including Mr Cooper Group
COOP,
Rithm Capital Corp
RITM,
Annaly Capital Management Inc.
NLY,
Two Harbors Investment Corp.
TWO,
and funds that specialize in mortgage servicing rights.
JPMorgan Chase & Co.
JPM,
has also acquired mortgage-servicing rights in the past.
The most likely buyers would be financial companies such as Annaly Capital Management and Two Harbors rather than operating companies, KBW said.
This is because these deals would allow New York Community Bancorp to keep its escrow deposits if it continues as a mortgage subservicer.
“As long as the company keeps the subservicing on any mortgage servicing rights sold, they should be able to maintain the deposits, especially since most buyers are non-banks,” KBW said. “However, if they sell the whole servicing operation, it will likely be harder to hold on to the escrow deposits.”
New York Community Bancorp operates one of the largest mortgage subservicers in the U.S., with a portfolio of more than one million loans with unpaid balances of about $300 billion, KBW said.
New York Community Bancorp, which is parent to operating unit Flagstar, said in late January that it needed to cut its dividend to raise more capital as a Category IV bank with assets of $100 billion to $250 billion, after its acquisition of Signature Bank last year.
Since then, the bank has faced more bad news including the disclosure last week that it faced “material weaknesses” in its accounting protocols and news it would delay its financial filings.
New York Community Bancorp’s stock has fallen 73% so far this year, including the 23% drop on Monday.
Also read: Nine largest U.S. banks can handle their ‘problematic’ exposure to office real estate, S&P says
Philip van Doorn contributed to this article
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