Thomas Cangemi, the new head of New York Community Bancorp, is expected to begin weaning the regional bank from multifamily lending, and some observers said he may have to pursue an acquisition to address some of its multiple needs.
The promotion of Cangemi — who will take the reins from longtime CEO Joseph Ficalora on Thursday, just a few days after
To a certain extent the reset button on funding has already been pushed, thanks to the Federal Reserve’s
The company “needs to make an acquisition” in order to “structurally change” the composition of its funding base, said analyst Chris Marinac of Janney Montgomery Scott. At Sept. 30, CDs made up 35% of the company’s $31.7 billion deposit book.
“I think they will reconfigure toward more core funding,” Marinac said. “I think [the deposit composition] is going to change significantly ... but they’ll have to buy a bank to get there.”
News of the CEO transition took some by surprise this week. Neither the board nor Ficalora, 74, signaled that Ficalora’s retirement was imminent. Even if they had, the abrupt nature of the switch is unusual in an industry where such transitions are often announced months in advance.
A company spokesman would not elaborate on the timing of the change. But in a press release, New York Community gave credit to Ficalora for growing the company from less than $1 billion in assets and eight branches in New York at the time of its initial public offering in 1993 to a $54.9 billion-asset firm that today operates 236 branches across five states.
During Ficalora’s 27-year tenure as CEO, the company made 11 deals and cemented its place as a powerhouse in multifamily lending, making low-risk loans for nonluxury, rent-regulated buildings.
At the end of September, 75% of New York Community’s loan portfolio was multifamily loans, mostly in metro New York. To be sure, analysts expect the segment to continue to be a major focus of the company, but pressure has been mounting for executives to diversify the loan book.
Multifamily
Observers had raised concerns this year that city dwellers' pandemic-driven flight to suburbia and delays in rent payments could hurt lenders like New York Community that extend credit to the owners of apartment buildings in metropolitan areas. However, Ficalora said on the company's third-quarter earnings call that its borrowers' properties were holding up well and that credit losses
Still, the company’s stock has underperformed in recent years, and the once-active acquirer hasn't purchased a bank since March 2010 when it bought the failed Desert Hills Bank in Phoenix. A $2 billion merger agreement with Astoria Financial in Lake Success, N.Y.,
In Monday’s press release about his promotion from chief financial officer, Cangemi, 52, said he is “dedicated to working with [the company’s] executive management team to develop ways to enhance [the company’s] performance and evolve [its] business model while maintaining conservative underwriting practices.”
New York Community declined to make him available to talk about how he wants to alter its strategy.
Analyst Peter Winter of Wedbush Securities said that if Cangemi wants to diversify the company’s business model, completing an acquisition would be a good way to do it.
“My view is, with Tom looking to evolve the business model, there are opportunities to expand that model into other areas,” Winter said. “Typically their [habit] is to buy banks, sell the assets, keep the deposits and use that money to grow the multifamily lending business. But maybe now they look at acquisitions differently, and that could help them move into a new business line.”
Winter pointed to the company’s asset-based lending business as a logical expansion target. Asset-based lending is run by New York Community’s specialty finance team, whose loan and lease portfolio was $3.2 billion at the end of September.
Doing more commercial and industrial lending, which currently makes up about 8% of New York Community’s loan book, could be another growth opportunity, said Mark Fitzgibbon, a Piper Sandler analyst.
“I think Joe was a die-hard multifamily lending person, and I think that while Tom has always seen the wisdom of that business, I think he takes a broader view,” Fitzgibbon said. “It wouldn’t surprise me if he evolves the business model to more commercially oriented types of business like C&I loans that would have a wider margin and help balance interest rate sensitivity.”
Mixing up the funding base and diversifying business lines might also help the company’s earnings, which were pressured until the Fed began cutting rates, and its stock performance. In the past five years, New York Community’s adjusted stock price has declined by 16%. Simultaneously, the KBW Nasdaq Regional Banking Index has climbed 13.2%.
“I think historically it’s been a controversial stock, primarily because they’ve been a monoline company and haven’t evolved the business mix to the degree that competitors have,” Fitzgibbon said. “They are a liability-sensitive company, so they’re benefitting in this [low-rate] environment, but the reverse is true when rates are rising. So it tends to be a controversial stock.”
One thing is clear: Whatever changes are in store will be rolled out over time. The spokesman for New York Community said Cangemi will provide more details about his strategy in January during the company’s fourth-quarter earnings call.
In the meantime, industry observers are eager to see how the business changes shape.
“I think with Tom as CEO it’s a whole new game" in mergers and acquisitions, Marinac said. “Joe has done a nice job managing the company to be risk-averse and focused on a specialty asset class, but the thing that’s strategically flawed is the funding base. They kind of lived with it so long that it became second nature, but I think the pandemic has made them rethink the issue and with Joe willing to retire, it creates a new opportunity to consider" a structural change.
