On Thursday, Morgan Stanley adjusted its outlook on New York Community Bancorp (NYSE:NYCB), lowering the bank's price target from $6.00 to $4.00, while keeping its rating at Equalweight.
The revision follows the bank's plan to raise $1.05 billion through the issuance of common and convertible preferred stock, both priced at $2.00. Despite the stock closing at $3.46 on Thursday, the analysis assumes all preferred stock would convert to common shares, resulting in a significant increase in share count.
The capital raise is expected to be dilutive to tangible book value per share (TBVPS) by 36% but will improve the common equity tier 1 (CET1) ratio by 150 basis points. The newly raised funds are anticipated to cover potential cumulative losses on New York Community Bancorp multifamily and commercial real estate portfolio, which could reach approximately 340 basis points.
Additionally, the bank is set to welcome new board members, including notable figures such as Steven Mnuchin and Joseph Otting, who will also take on the role of CEO.
Morgan Stanley has revised its earnings per share (EPS) estimates for New York Community Bancorp for the years 2024 and 2025, marking them down from 21 cents and 67 cents to negative 2 cents and 24 cents, respectively.
This adjustment is due to an expected increase in share count and a forecasted decrease in net interest income. The bank's net interest income for 2024 is projected to fall by 8% from previous estimates to $2.3 billion, as a result of an accelerated runoff of non-interest-bearing deposits in the first quarter of 2024.
The new price target of $4.00 is based on a 0.6x multiple on the bank's pro forma TBVPS of $6.44. Morgan Stanley's decision to maintain an Equalweight rating reflects the uncertainty surrounding New York Community Bancorp's future, including potential credit losses, the impact of loan sales and credit risk transfers on net interest margin (NIM), possible loan sale losses affecting CET1, and the ability to reduce expenses amid revenue challenges.
The firm also noted the lack of an update on deposit balance and mix in the bank's recent announcement.
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