Experts: Real Estate Investors & Depositors Bolting from Signature Bank May Have Caused its Collapse
Edited by: TJVNews.com
Over the past week, Silicon Valley bank (SVB) and Signature Bank, have been placed into receivership with the Federal Deposit Insurance Corporation (FDIC), which will put all deposits into bridge banks run by the FDIC until they can be sold in an effort to quell panic about the stability of the banking system, according to a report on the vice.com web site.
According to the FDIC, customers “will continue to have uninterrupted customer service and access to their funds by ATM, debit cards, and writing checks in the same manner as before. Signature Bank’s official checks will continue to clear.”
Signature Bank was well-known as a key banker for the hyper-speculative crypto industry, which has experienced a collapse over the past year, according to the report on vice.com. While most of its deposits were not crypto-related, it launched a product called Signet that facilitated commercial crypto payments and which was approved for use by the New York State Department of Financial Services, the vice.com report stated.
According to New York state regulators and building owners, a factor that led to the collapse of Signature Bank was a rush by New York City real-estate investors to take their assets out of the bank, according to a recent Wall Street Journal report .
A publicly available FDIC evaluation from 2022 shows that nearly half of all Signature’s lending was in real estate, vice.com reported. The report also stated that $16 billion of those real estate loans—over half—went to financing multifamily apartment buildings. Vice.com also reported that it owns a Real Estate Investment Trust that invests in mortgage-backed securities, the same type of speculative assets that helped drive the 2008 financial crash.
Signature Bank has established a reputation as a big player in the housing market and this was confirmed by former Senator Barney Frank, who sat on Signature’s board, vice.com reported. In an interview, he told Bloomberg that the bank is “the biggest lender in New York City under the low-income housing tax credit.”
The WSJ report indicated that Signature Bank’s roots go back to 1999, when HSBC Holdings PLC acquired Republic New York Corp. for about $10 billion. Signature was founded by Joseph DePaolo, a senior executive at Republic, and Scott Shay, who has worked over the years for mortgage legend Lewis Ranieri, according to the WSJ report. Israel’s Bank Hapoalim provided the pair financial backing.
The founders thought HSBC’s acquisition of Republic would leave New York’s small and midsize clients underserved. The WSJ also reported that Signature opened in 2001 as a subsidiary of Bank Hapoalim, going public three years later.
Signature increasingly focused on serving New York’s real-estate industry, as was reported by the WSJ. Many of the city’s most prominent real-estate families were clients, including the Trumps, the Kushners and the Kaufmans.
Word spread rather quickly that landlords were withdrawing cash in the close-knit community of New York’s real-estate families, prompting others to follow suit, the WSJ reported.
Attorney Ken Fisher with the Cozen O’Connor firm and someone who has a personal bank account with Signature and represents many of the bank’s real estate borrowers and depositors, told The Real Deal that, “In the short term there’s going to be a lot of dislocation and fear of the unknown.”
Chief executive Craig Deitelzweig of the real-estate investor Marx Realty told the WSJ that the company was among the many New York firms to cash out, withdrawing several million dollars early last week from Signature accounts tied to an office building.
The bank’s crypto exposure and plummeting stock price worried him. “We just thought ‘Why have that risk?’” Mr. Deitelzweig told the WSJ.
Peter Zinkovetsky, a New York-based real-estate lawyer, said panicked clients called over the weekend asking if they could move money from their Signature accounts into escrow accounts overseen by his firm, a faster alternative to opening a corporate account with a new bank, the WSJ reported.
As was reported by the WSJ, Signature had its headquarters on Manhattan’s prestigious Fifth Avenue and built its business in part through lending to New York developers and owners of multifamily buildings, office towers, retail property and other commercial real estate.
According to data from the Federal Deposit Insurance Corp, and reported by the WSJ, the bank’s $35.7 billion in real-estate loans accounted for about a third of its $110.4 billion in assets at the end of 2022. FDIC data also shows that the bank significantly expanded its real-estate loan book more than fourfold over the past decade.
The roster of property investors who had deposits at Signature, according to those familiar with the matter and reported by the WSJ, include local operators such as retail property magnate Jeff Sutton as well as global money managers such as Brookfield Asset Management.
According to an analysis by property news and data company PincusCo, and reported by the WSJ, no other bank has issued a higher number of commercial real-estate mortgages against New York City buildings since Jan. 1, 2020. Only Wells Fargo & Co. and JPMorgan Chase & Co. lent more money.
Many of the wealthy real-estate families and property funds who borrowed from Signature also had sizable deposits with the bank, according to brokers, property owners and lenders, the WSJ reported. Speaking to the WSJ, Jonathan Iger, chief executive of office landlord Sage Realty and a Signature customer, said that when borrowing from Signature “the right thing to do is keep operating accounts at the bank.”
One of the largest uncertainties Signature clients are facing is exactly when deposits over $250,000 will be available, according to the report on The Real Deal web site.
Fisher and others said that despite the government’s attempts to stop a bank run, clients are still attempting to move their money from smaller banks to bigger ones.
Gov. Kathy Hochul held a press conference Monday to tell customers not to worry, The Real Deal reported. “The banks are open,” she said. “Everything is fine, calm. Now the FDIC is in charge of the bank, and they’ll be communicating any further details about the future.”
The Daily Mail of the UK had published photos of customers lining up at branches of First Republic Bank over the weekend to take out their money, as was reported by The Real Deal. Shares of the bank plunged when trading opened Monday and finished the day down 62 percent. Signature stock was trading at $70 — down from $110 Tuesday — when it was suspended Friday.