Mar 15, 2024 - Business

After NYCB's rescue deal, analysts forecast Q1 losses

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

New York Community Bancorp's stock rose last week on the news that it was getting rescued by a private equity consortium led by Steve Mnuchin. But its expected earnings plunged.

Why it matters: In early February, after NYCB took an extraordinary charge of $552 million for credit losses on its commercial real estate portfolio, the message from the bank's leadership was that the bank was still solidly profitable.

  • That has now changed: Wall Street's earnings estimates for both the first quarter and the full year of 2024 turned sharply negative over the last week.

Between the lines: Before Mnuchin's $1 billion cash infusion, NYCB desperately needed the confidence of Wall Street, and had a very strong incentive to report positive earnings every quarter.

  • Now that the bank's solvency has been assured, the new management team can afford to front-load bad news.
  • Bank earnings are as much art as science, in terms of whether and when provisions should be taken against a loan portfolio.
  • By taking another big provision in the first quarter, NYCB's new management would create a runway for future profits, while lumping their predecessors with implicit blame for current losses.

The bottom line: There wasn't any formal earnings guidance on NYCB's most recent call with analysts, on March 7. But since then, every single analyst covering the stock has slashed their first-quarter earnings forecast to a negative number.

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