There's SO much buried in this quick exchange from New York Community Bank's earnings discussion last week... [see our summary and takeaways below]
---- The exchange (paraphrased) ----
Analyst:
Let’s go back to the CRE concentration issue. When you look at CRE vs. your peers, is it still appropriate to exclude multifamily? Do regulators look at it that way? Rent-regulated multifamily was virtually risk-free historically, but it’s a new paradigm with the 2019 rent law changes.
Bank President:
We focus on relationship banking. We are moving into higher-margin businesses, which are focused on relationship banking. When the market reacts to changes in interest rates and customers look to refinancing, we have a golden opportunity to take low-yielding coupons off the books, reduce CRE concentration materially, and move into higher-yielding assets. With transaction activity down 90%, there’s no activity in the market. Our customers are waiting on the sidelines. When the customer feels prudent that it's time to lock in the next 5 to 10 years, they will make that decision.
Analyst:
Over time, the CRE concentration needs to get to peer levels.
Bank President:
Look, that is a huge business model of ours. We have a great track record, we have great customers, we have lots of relationships on the deposit side, who are obviously uniquely different. That’s who we are and that goes back to our roots, but ultimately, we’re a new company. We’re a commercial bank evolving from a monoline thrift focused on multifamily CRE.
Analyst:
Last one from me, the language here about being over $100 billion feels far more urgent today than just a few months ago. Has something changed on the regulatory front in terms of overall standing or timeline to be ready for new stress testing?
Bank President:
We obviously aren’t going to speak specifically about regulatory conversations. We’re a highly regulated institution in an industry that’s highly regulated. But the reality is that we do have an April submission.
---- Our takeaways (TLDR) ----
Q: Why do you cite CRE exposure without multifamily?
A: No answer
Q: Do regulators look at it that way?
A: No answer
Q: Is the NYC-regulated multifamily market riskier than it was historically?
A: No answer
Q: Are you going to bring down your total CRE exposure?
A: We're trying but there's no transaction activity.
Q: You sound a lot more urgent around needing to get bigger. Are you getting regulatory pressure?
A: No answer
More than 1 million NYC apartments are governed by some form of rent regulations. Those regulations changed materially in 2019 with the City's "Housing Stability and Tenant Protection Act."
According to Maverick Real Estate, values in Manhattan have fallen by nearly 40% since the new regulations were enacted.
---- Question ----
Is the NYC-regulated rental under as much duress as anything else in the CRE ecosystem?
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