Edited by: TJVNews.com
New York Community Bank has agreed to buy a significant chunk of the failed Signature Bank in a $2.7 billion deal, the Federal Deposit Insurance Corp. said late Sunday, according to an AP report.
The 40 branches of Signature Bank have now become Flagstar Bank, as of Monday. Flagstar is one of New York Community Bank’s subsidiaries. The AP reported that the deal will include the purchase of $38.4 billion in Signature Bank’s assets, a little more than a third of Signature’s total when the bank failed a week ago.
The FDIC said $60 billion in Signature Bank’s loans will remain in receivership and are expected to be sold off in time, according to the AP report.
Signature Bank was the second bank to fail in this banking crisis, roughly 48 hours after the collapse of Silicon Valley Bank. The AP reported that Signature, based in New York, was a large commercial lender in the tristate area, but had in recent years gotten into cryptocurrencies as a potential growth business.
“The deal almost seems too good to be true,” wrote analyst Chris McGratty of Keefe Burettye & Woods. Similarly, David Chiaverini, analyst at Wedbush Securities, described the transaction as a “sweetheart deal” for NYCB, but a bitter pill for Signature’s stakeholders, who seem destined to see zero recovery after their equity was suddenly obliterated on March 12, when Signature bank became the third biggest bank failure in United States history.
Tom Cangemi, President and Chief Executive of NYCB and Flagstar Bank N.A, expressed enthusiasm over his bank’s takeover of Signature. “When things are dark and gloomy, that’s when opportunities arise,” he said in a conference call on Monday. “We’ve been through this fire drill before.” NYCB, the Long Island based bank founded in 1859, already has some 225 branches throughout New York, New Jersey, Ohio, Florida and Arizona. It boasted $87 billion in assets as of 2022.
As per Crain’s, in the deal, NYCB got to pick and choose what parts of Signature it wanted. The FDIC was left with about $60 billion in assets. NYCB chose not to take on any of Signature’s $50 billion in commercial real estate and multifamily loans. Cangemi commented saying it isn’t the right time to take on more real estate loans. “We have to acknowledge how concentrated we are,” said the CEO.
“I don’t think this would ever have happened, given the history,” Cangemi said, referring to the impressive deal he inked. “Our management team and board of directors would like to thank our regulators for providing us this opportunity.”
Signature Bank opened on May 1, 2001 and was founded by Joseph J. DePaolo, the bank’s president and chief executive officer; Scott A. Shay, chairman of the board; and John Tamberlane, vice chairman and director, as was reported by Wikipedia.org.
DePaolo and Tamberlane had left Republic National Bank of New York after it was purchased by HSBC the year prior. Wikipedia reported that six branches were opened simultaneously across the New York City area, with the goal to cater to wealthy clients and middle-market business managers with $250,000 in assets.
DePaolo described the target audience as “the guy who started his business in Brooklyn and is now worth $20 million,“ as was reported by Wikipedia. The bank was a subsidiary of Bank Hapoalim of Israel, which provided over $60 million in initial capital. Wikipedia also reported that among its first employees were 65 former Republic Bank employees, who left en masse on April 27, days before Signature opened its branches. The bank quickly grew to $950 million in assets by February 2003, ranking in the top five percent of US commercial banks just 20 months after being founded and beginning to turn a profit. Wikipedia reported that it also made relatively few loans: adopting a strategy once used by Republic Bank, it put its assets in instruments with lower yields. This led to a net interest margin of 2.8 percent, lower than many comparable banks.
Signature specialized in deposits from realtors and lawyers, as was reported by the JTA, and drew scrutiny from regulators in 2018 for its relationship with people in the circle of then-President Donald Trump, including his Jewish son-in-law and senior adviser, Jared Kushner.
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 a recent interview, he told Bloomberg News that the bank is “the biggest lender in New York City under the low-income housing tax credit.”
According to data from the Federal Deposit Insurance Corp, and reported by the Wall Street Journal, 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.”
Signature Bank co-founder Scott Shay had worked over the years for mortgage legend Lewis Ranieri, according to a report in the Wall Street Journal. Moreover, Shay has been a major funder of Jewish and pro-Israel causes, with a focus on education, as was reported by the JTA.
Shay has served on the boards of the UJA-Federation of New York, the Partnership for Excellence in Jewish Education and the Jewish Agency for Israel, and has also been a supporter of Birthright Israel, according to his online biography, as was reported by the JTA. He is the president of Chai Mitzvah, which facilitates Jewish text study in groups, the report added.
In recent years, he has also been a donor to the New York Jewish Week, which is published by the Jewish Telegraphic Agency’s parent company, 70 Faces Media.
After Silicon Valley Bank failed, depositors became nervous about Signature Bank’s health due to its high amount of uninsured deposits as well as its exposure to crypto and other tech-focused lending, the AP reported. By the time it was closed by regulators, Signature was the third largest bank failure in U.S. history.
New York Community Bancorp jumped 31.7% after it agreed to buy much of Signature Bank in a $2.7 billion deal, the Federal Deposit Insurance Corp. said late Sunday.
The FDIC says it expects Signature Bank’s failure to cost the deposit insurance fund $2.5 billion, but that figure may change as the regulator sells off assets. The deposit insurance fund is paid for by assessments on banks and taxpayers do not bear the direct cost when a bank fails.
The AP also reported that stocks rose on Wall Street Monday after regulators pushed together two huge banks over the weekend and made other moves to build confidence in the struggling industry.
The S&P 500 climbed 34.93 points, or 0.9%, to 3,951.57. The Dow Jones Industrial Average gained 382.60, or 1.2%, to 32,244.58, and the Nasdaq composite added 45.02, or 0.4%, to 11,675.54.
On Tuesday, the AP reported that some years ago, Red-state Democrats facing grim reelection prospects joined forces with Republicans to slash bank regulations — demonstrating a willingness to work with President Donald Trump while bucking many in their party.
That unlikely coalition voted in 2018 to roll back portions of a far-reaching 2010 law intended to prevent a future financial crisis, the AP reported. But those changes are now being blamed for contributing to the recent collapse of Silicon Valley Bank and Signature Bank that prompted a federal rescue and has stoked anxiety about a broader banking contagion.
The AP reported that the rollback was leveraged with a lobbying campaign that cost tens of millions of dollars and drew an army of hundreds of lobbyists as well as being seeded with ample campaign contributions.
“The bottom line is that these banks would have faced a tougher supervisory framework under the original … law, but Congress and the Trump regulators took an ax to it,” said Carter Dougherty, a spokesman for Americans for Financial Reform, a left-leaning financial sector watchdog group, the AP reported. “We can draw a direct line between the deregulation of the Trump period, driven by the bank lobby, and the chaos of the last few weeks.”
President Biden has asked Congress for the authority to impose tougher penalties on failed banks. The AP reported that the Justice Department and the Securities and Exchange Commission have started investigations. And congressional Democrats are calling for new restrictions on financial institutions.
The Epoch Times reported that according to a recently published study, nearly 200 more banks could be vulnerable to the same type of risk that collapsed Silicon Valley Bank (SVB) earlier this month.
There are 186 banks across the United States that could collapse if half of their respective uninsured depositors withdraw their funds, researchers with the Social Science Research Network found, as was reported by the Epoch Times. Deposits at member banks of up to $250,000 are insured by the Federal Deposit Insurance Corp., although the agency agreed to insure depositors’ funds far above that after SVB’s collapse this month.
“Combined, losses and uninsured leverage provide incentives for an SVB uninsured depositor run,” an abstract of the paper reads, according to the Epoch Times report. “We compute similar incentives for the sample of all U.S. banks. Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk.
“If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk. Overall, these calculations suggest that recent declines in bank asset values very significantly increased the fragility of the US banking system to uninsured depositor runs.”
Insured depositors of those banks could also see problems trying to withdraw their cash if those financial institutions face a bank run, the paper’s authors (pdf) say, the Epoch Times reported. The researchers noted that those banks hold a large amount of their assets in government bonds and mortgage-backed securities, which are highly reactive to interest rates that have been raised significantly over the past year by the Federal Reserve.
“Our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization,” the economists wrote.
Much attention has been on banks because they may be cracking under the pressure of much higher interest rates. The AP reported that Swiss banking giant UBS said Sunday it would buy its troubled rival Credit Suisse for almost $3.25 billion in a deal quickly put together by regulators. Credit Suisse has been battling a unique set of problems for years, but they came to a head last week as its stock price tumbled to a record low.
A group of central banks stretching from the United States to Japan also announced coordinated moves on Sunday meant to ease strains in the financial system, the AP reported. They should allow banks more access to U.S. dollars if needed, in an echo to a practice widely used in prior crises.
The moves don’t mean the banking industry’s crisis is over, but “it’s taken one of the troublesome aspects off the table,” said Ryan Detrick, chief market strategist at Carson Group, according to the AP report.
The late Sunday announcements by regulators may be reminiscent of the 2007-08 financial crisis that wrecked the global economy, but many investors see big differences between then and now.
Detrick told that AP that, “the market is trying to digest: Is this just a few bad financial companies that have really made some bad decisions, or is the whole thing a house of cards? We’re optimistic that it’s multiple banks in a bad situation but not the entire system.”
In the U.S., most of the attention has been on smaller and mid-sized banks on fears that falling trust could push their depositors to pull their money all at once, the AP reported. That’s what’s called a bank run, and such a move could topple them.
First Republic Bank has been at the center of investors’ crosshairs in the hunt for the industry’s next victim following the second- and third-largest U.S. bank failures in history, according to the AP report. Its shares fell 47.1% after S&P Global Ratings cut its credit rating for a second time since Wednesday.
S&P said it could lower the rating even further despite a group of the biggest U.S. banks announcing last week they would deposit $30 billion in a sign of faith in First Republic and the larger banking industry.