Joseph Ficalora has made it in New York. Can he really make it anywhere?
Ficalora, the president, chairman and chief executive of New York Community Bancorp, struck a deal last week to acquire most of the assets of the failed AmTrust Bank of Cleveland, the company's first acquisition outside its Northeastern markets.
"In this deal we're going to be a better company," Ficalora said in an interview Monday. "We'll have a better balance sheet. We'll have better earnings. We'll have better capital. We'll have better reserves."
New York Community won't stop there — it plans to buy other banks as the recession winds down, he said. "We are going to be a very efficient, profitable consolidator through this cycle," Ficalora said.
In many ways, New York Community's deal for $11 billion of AmTrust Bank's assets and all 66 of its branches is a coup. The Westbury company — among the country's healthiest banks — paid no premium for AmTrust's $8 billion of deposits. It also doesn't have to absorb any of its foreclosed properties or toxic construction and development loans.
Still, while the purchase should be immediately accretive to earnings, some market watchers question the wisdom of the move by New York Community — which has 212 branches in New York and New Jersey — to extend into unfamiliar and volatile markets like Arizona, Ohio and Florida. After all, the recession has sunk a long list of banks that booked massive losses in new markets or business lines where they had no experience.
"This is quite a divergence. Now they've got branches all the way out to Arizona and Florida. The expertise these guys have in those markets is really nil," said Maclovio Pina, an analyst with Morningstar Inc. He said the scale of this transaction could also create complications.
"It is a fairly big integration," Pina said. "They grew by about a third overnight, which is quite an undertaking."
Ficalora, however, said he isn't worried about running into trouble in his company's new markets, for two reasons: New York Community has a long history of successfully doing large deals, and it does not originate loans at the branch level. This deal delivers $8 billion in attractive new deposits, he said, and the company expects that only 15% or so will run off.
"When people talk about Florida and Ohio, they're talking about the risks of lending money in Florida and Ohio," Ficalora said. "Understanding a depositor and actually accommodating a deposit is significantly low-risk."
New York Community has an unusual business model. It relies heavily on outside funding sources — rather than deposits — to finance its lucrative core business of lending to the owners of New York-area apartment owners. Those borrowers have proven to be among the soundest in finance, and New York community boasts that it has not charged off a multifamily housing loan in about 30 years. It had $16.5 billion of them through Sept. 30.
It has also relied heavily on growth through acquisitions, buying at least seven other companies since 2000.
Retail banking in some ways has been a secondary business for New York Community. It does not generate loans at its branches, relying on outside lenders to provide products like home loans. The upside to this has been that New York Community usually has one of the industry's best-performing loan portfolios. Ficalora said relying on third parties to make local loans gives his company an edge over other lenders as it prowls for other failed-bank deals.
"These markets are difficult to be lenders in," Ficalora said. "Other banks would have to bid based on their need to lend in the Miami market. We don't have that need. We are virtually in a different place when we bid."
Peter Winter, an analyst with Bank of Montreal's BMO Capital Markets, said there's a big drawback to New York Community's approach: It tends to have a hard time increasing deposits organically. People tend to open more checking and savings accounts with banks that they borrow from. New York Community, excluding this transaction, has a loan-to-deposit ratio of more than 160%, which means it has more loans than deposits. The typical bank has a ratio of less than 100%, he said.
"If you don't have the lending relationship, in my opinion, it is hard to grow the deposit franchise," Winter said. "They haven't really been able to grow deposits organically in their current franchise."
Ficalora said his company is optimistic it can hold on to and increase deposits in its new markets. The branches it is acquiring in many cases have more deposits per branch than its average branches in New York and New Jersey.
"We look at the Florida and the Arizona market as rich sources of deposits," he said in a conference call with analysts on Monday. "The franchise that we're dealing with here is a highly effective franchise. They have very large branches."
