New York Community boss makes another bold move with Figure deal

New York Community Bancorp Chairman and CEO Thomas Cangemi dropped plenty of hints last month that his quest to expand the company’s digital banking capabilities would involve a deal with a fintech.

Less than three weeks later, Cangemi and New York Community announced a partnership with San Francisco-based Figure Technologies. The two companies will work together on a series of blockchain-related initiatives.

The partnership — which includes an undisclosed financial investment in Figure by New York Community — is the latest example of Cangemi shaking things up since ascending to the chief executive job in late December.

During 2021, the $57.5 billion-asset company has announced a deal for Flagstar Bancorp in Troy, Michigan, which, pending regulatory approval, will be New York Community’s first bank acquisition in more than a decade; created a chief digital banking officer job; and started the process of transforming from a niche lender into a full-fledged commercial bank.

The deal with Figure “speaks to a bank that has been for a long time in a place with a stagnated strategy,” Bank of America Securities analyst Ebrahim Poonawala said in an interview this week.

“When Tom took over, his message to the Street was: ‘We’re going to transform the business model,’ and Flagstar was part of that,” Poonawala said. “Now, to partner with someone like Figure, this speaks to this being a very different New York Community than anything we’ve seen over the last 20 or 30 years.”

“This is a guy who understands that the business model needs to be transformed, and he’s on it,” he added.

New York Community’s revamp under Cangemi — who took the reins after the abrupt retirement of Joseph Ficalora, who was CEO for 27 years — is multipronged.

The Hicksville, New York-based company, which has long been a leader in multifamily lending and has relied heavily on higher-cost certificates of deposit to fund its loans, now wants to do more commercial lending. It also plans to tap into its multifamily and commercial borrowers to generate more lower-cost core deposit growth.

The bank has made headway on the liability side of its balance sheet. At the end of June, CDs made up 26% of its deposit base, down from 32% at the end of December.

Progress on the asset side has been slower. Commercial real estate loans accounted for 16% of the company’s loan book at June 30, while commercial and industrial loans comprised 9%. Those percentages were largely unchanged from the start of the year.

The Flagstar deal should help on both sides of the balance sheet, Cangemi has said. The acquisition includes Flagstar’s mortgage warehouse business, which is the second largest in the country. New York Community wants to tap into cross-selling opportunities by encouraging Flagstar’s mortgage warehouse customers both to take out commercial loans and to keep lower-cost deposits at the bank.

At the same time, New York Community is seeking to build out its digital banking capabilities. During the company’s second-quarter earnings call in July, Cangemi told analysts that the bank is “reallocating resources to building out a digital platform” that will help it get “caught up to the industry.”

The changes include the addition of a chief digital officer who will report to Cangemi. New York Community also plans to pursue so-called banking-as-a-service opportunities that would be available by forming relationships with fintech companies.

With Figure’s help, New York Community hopes to use digital ledger infrastructure to expand financial inclusion in banking and credit, cut costs in the mortgage business and create a quicker, less expensive payments system, the company said in a press release Monday.

It plans to use the Provenance Blockchain, an open source distributed ledger for the financial services industry that Figure established to trade consumer loans and sell securities.

Cangemi was not available this week to talk about the relationship with Figure, the company founded in 2018 by Mike Cagney, who also helped start Social Finance. In the press release, Cangemi said the agreement is part of the bank’s “strategic focus on the operational and cost benefits that blockchain technology can bring to bear across many areas of banking.”

The blockchain initiative figures to yield benefits in connection with the Flagstar merger, analyst Peter Winter of Wedbush Securities said. Through blockchain technology, New York Community could reduce the costs of mortgage origination and servicing as well as securitization, which should increase gain on sale margins, Winter said.

That does not mean reductions in staffing, according to a New York Community spokesman who said he could not give details about cost-cutting plans because those details are proprietary to Figure’s mortgage servicing operations. Figure announced this month that it will merge with Homebridge Financial Services, a nonbank mortgage lender, and work with Sagent, a fintech software company that will provide core servicing and default servicing platforms.

Overall, the relationship with Figure will help New York Community catch up in an industry where technology is rapidly accelerating the course of business, according to Chris Marinac, an analyst at Janney Montgomery Scott.

The company is “forcing itself to change” under new leadership, Marinac said.

“I think they’ve got a really interesting situation, and this fintech partnership is a log on the fire for what I think is very positive steam starting to come out of the factory,” Marinac said.

While it is unclear how the partnership with Figure will affect the bank’s earnings, what is certain is that the deal “reinforces that with Tom as CEO, the company is going in a different direction,” Winter said.

“I think this is just the tip of the iceberg,” he said. “We fully expect there will be additional announcements on fintech partnerships, hires to expand and build out digital banking and hopefully a little more about the opportunities with Figure. It’s kind of like, ‘Stay tuned.’ ”