There’s no getting around the fact that New York Community Bancorp’s (NYCB) return history over the past decade-plus is brutal. Total returns over the last 15 years are just under 3%/year on an annualized basis, and even if you reinvested the dividends along the way, the 4% return is still quite weak. That said, the average bank hasn’t done any better over that same 15-year period, though you do start seeing a divergence at the 10-year mark that widens to about 8%/year underperformance at five years.
NYCB had a host of problems, but a lot of it stemmed from a management team that clung stubbornly to a monoline thrift business model – lending overwhelmingly to NYC multifamily developers and funding those loans with higher-cost CDs and brokered deposits. That model may be worked when it was a much smaller bank, but it didn’t scale well, and NYCB had an unattractive deposit base, a highly-concentrated loan book, and actual liability sensitivity, making it one of the few banks that would see net interest income negatively impacted by higher rates.
The pending merger of equals with Flagstar (FBC) could be a fresh start for this bank, complementing the change in CEO made less than a year ago. Unlike what most bank management teams pledge, there’s actually real revenue synergy and diversification potential here, though a bear could also argue that it combines two risky businesses with the addition of integration risk. While I want to be at least somewhat skeptical here, it doesn’t take tremendous assumptions to suggest meaningful undervaluation.
Read more here:
New York Community Bancorp's Flagstar MOE Could Put A Brutal Performance History Behind It
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