New York Community Bancorp: NYCB advances nearly 6% on Thursday

NYCB stock makes gains on Thursday following Mnuchin rescue.
New York Community Bancorp says deposits fell by 7% over past month.
NYCB cuts dividend to $0.01 per quarter, down from $0.05 in February.
Liberty Strategic Capital and other institutions invested $1 billion to shore up bank on Wednesday.

New York Community Bancorp (NYCB) spiked 12% at the start of trading on Thursday, but that lead was cut to 5.8% by the close after the embattled lender announced that 7% of deposits had left the bank over the past month.

It would seem Wall Street is warming overall to the $1 billion lifeline handed to the bank on Wednesday from a consortium led by the likes of former Treasury Secretary Steve Mnuchin. But traders are uncertain whether the danger has ended after the bank received a flurry of downgrades earlier this week.

Both Moody's and Fitch downgraded the bank on Monday after its CEO left recently due to what the board deemed "material weaknesses" to its lending oversight. NYCB has been on a wild ride all week.

The S&P 500 gained over 1% on Thursday, while the NASDAQ jumped slightly more than 1.5%.

New York Community Bancorp stock news

The fact that 7% of deposits have fled New York Community over the past month is rebuffed somewhat by an earlier announcement that deposits had risen from $81.4 billion to $83 billion between the end of 2023 and February 4, 2024.

Additionally, NYCB stock continues gaining despite the news on Thursday, because the bank has very little exposure to account holders with more than $250,000 in deposits compared with its peers. $250,000 is the amount that is insured by the Federal Deposit Insurance Corporation (FDIC), so it is unlikely that New York Community would suffer the same fate as First Republic or Silicon Valley Bank during the 2023 regional banking crisis when fleeing depositors led to those institutions’ collapse.

Alongside the announcement of declining deposits on Thursday, the board announced it would once again cut its quarterly dividend — this time to one cent. The dividend had already been cut at the start of the year from $0.17 to $0.05 in order to shore up a balance sheet injured by a faltering commercial real estate (CRE) portfolio and a higher regulatory burden.

In a fascinating twist, New York Community’s heightened regulatory burden stems from last year’s regional banking crisis when it purchased loans and deposits from the failed Signature Bank. This acquisition pushed its assets above $100 billion, which subjects the bank to more stringent protocols regarding its coverage ratio.

Steve Mnuchin and company appear to have worked out a sweetheart deal. When the bank announced that it was seeking outside investment to protect itself on Wednesday, the stock fell nearly 50% before the New York Stock Exchange halted trading. The stock then reopened to trading at a much higher level once the investment was announced from Mnuchin and other partners.

NYCB stock traded as low as $1.70 on Wednesday before the trading halt. Shares reopened above $4 per share once it was announced that Mnuchin’s Liberty Strategic Capital would invest $450 million, Hudson Bay Capital Management would invest $250 million and Reverence Capital Partners would invest $200 million. Other entities and individuals, including Citadel Global Equities, would round out the deal to provide the bank with a $1.05 billion cash infusion.

For their investment, members got a great deal, based on the current share price on Thursday. The investor group got to purchase new shares of common stock at $2 per share, plus preferred convertible stock at $2 per share. Additionally, they received the option to buy warrants with a conversion price of $2.50.

If Mnuchin and the rest can turn New York Community around, then they are all looking at a quite valuable payday. The agreement is scheduled to be finalized on March 11. Top executives have already left the company, and the new investor team will be filling out much of a new nine-member board.

Penny stocks FAQs

What is a penny stock?

Originally, penny stocks were any stock that traded for less than $1, i.e. pennies. The Securities & Exchange Commission has since altered the definition to include any stock that trades for less than $5. Penny stocks are typically associated with small companies that have either experienced poor results, sending their share price down, or with companies who dilute their share price by issuing lots of shares over time in order to fund operations or acquisitions.

Where do penny stocks trade?

Some penny stocks trade on respected exchanges, such as the NASDAQ or the NYSE. Examples of these are Mullen Automotive (MULN) and Bark (BARK). Those exchanges have requirements though. For the NYSE, listed stocks must have 1.1 million publicly traded shares outstanding with a market value of at least $40 million. The NASDAQ requires a share price minimum of $4, a minimum of 1.25 million shares and a market cap of $45 million. Most penny stocks, however, trade on the OTC (over-the-counter) market. This may mean the OTC Bulletin Board or the privately-owned OTC Markets Group.

Why are penny stocks so volatile?

Quite often the sharpest movers on any normal trading day are found among penny stocks. This is because non-penny stocks tend to have more liquidity, and the market is more certain about larger companies’ long-term values. Penny stocks are illiquid, meaning there is little supply available if an announcement drives more buying demand into a particular stock. There are no market makers that hold large amounts of penny stocks just to dispense them at a slightly higher price point. Additionally, most of these penny stocks suffer from a news desert where few market players know anything relevant about them. This is why a small biopharma company can issue news about a successful drug trial and immediately rocket 500% higher, with no analysts on Wall Street covering it.

Should I invest in a penny stock?

Typically, the answer is “No”. Penny stocks are more risky than higher-priced stocks on average. Penny stock investors have a higher chance of losing their capital by investing in weaker companies. There is a reason why they are penny stocks in the first place, which is that largely the mainstream market is not interested in investing in them. Two groups of investors tend to focus on penny stocks, however. The first group are day traders, who know that the lack of liquidity in penny stocks could lead to extremely large swings over a short time period. The other group is made up of investors who like the fact that these stocks are disregarded. This allows these investors to gain an advantage by benefiting from upcoming announcements, because the larger market is not paying attention.

New York Community stock forecast

With the dilution made to NYCB common stock, it is less useful to look at historical levels of support and resistance. The 15-minute chart below tells us how the stock is being viewed by Wall Street currently.

NYCB stock has spent the whole day in the green, but its early lead has been steadily dissipating. The Thursday open saw a huge jump to the $3.90s give way to the $3.60s, but buyers were present to pick up the slack at that level. NYCB stock entered the afternoon in the $3.70s before falling to a daily low at $3.56.

From here it looks like the 38.2% Fibo at $3.88 and the 61.8% Fibo at $4.05 are the levels that will deliver confidence. But any breakdown of $3.60 will be worrisome for bulls.

NYCB 15-minute chart

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