JP Morgan Chase Lifts NYCB With $5B Warehouse Loan Purchase
Struggling regional bank’’s future health remains up in the air, analysts say.
By Andrew Coen May 15, 2024 2:48 pm
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New York Community Bank is unloading around $5 billion of residential mortgage warehouse loans to J.P. Morgan Chase in another attempt to improve its liquidity position on the heels of suffering hundreds of millions in losses tied to commercial real estate loans.
The transaction, which was announced late Tuesday for undisclosed terms, is aimed largely at enhancing NYCB’s “loan-to-deposit metrics,” according to Joseph Otting, NYCB’s CEO and president. The sale is slated to close in the third quarter of this year.
Matt Reidy, director of CRE economics at Moody’s Analytics, said mortgage warehouse lending typically consists of revolving loans to independent mortgage brokers and lenders to enable them to originate mortgages mostly sold to Fannie Mae and Freddie Mac. Since the sale was related to residential loans, Reidy said he doesn’t envision it resulting in any significant impact to the overall CRE market.
Reidy added that while the deal will satisfy investor goals of increasing NYCB’s Common Equity Tier 1 ratio and bolstering its liquidity, the loss of billions in mortgage warehouse loans could hamper the bank over the long term.
“Mortgage warehouse lending is typically a profitable business for banks, so it seems unlikely that it was their first choice of what to sell,” Reidy said.
NYCB, the parent company of Flagstar Bank, is disposing of mortgage warehouse loans on the heels of receiving a $1 billion capital infusion from investors led by former Treasury Secretary Steve Mnuchin in early March after the bank’s stock fell below $2 a share and trading was halted. The company’s stock began to take a nosedive following its Jan. 31 earnings call when it reported a $252 million loss connected to loans on office and rent-regulated properties, with credit losses for the fourth quarter reaching $552 million.
The J.P. Morgan announcement initially bumped up NYCB’s stock by 3.4 percent Tuesday to $4.02 in extended trading as of 7:25 p.m. before closing at $3.89. However, its stock was down 6.56 percent in early afternoon trading Wednesday.
Zhijun Yang, assistant professor of finance at the University of Pittsburgh at Johnstown, said the move makes sense for both banks, but may not be enough to solidify NYCB long term.
“J.P. Morgan is taking advantage of the situation to consolidate its leading position in warehouse mortgages in New York,” Yang said. “I am not sure if NYCB will survive eventually.”
Officials at J.P. Morgan did not immediately return a request for comment.
Andrew Coen can be reached at acoen@commercialobserver.com
