After NYCB's rescue deal, analysts forecast Q1 losses
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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.
