The dividend slash that’s cut 60% off shares of
New York Community Bancorp,
and shaken regional bank stocks, need not have happened, says investor Thomas Kahn. He blames bank regulators.
Kahn runs Kahn Brothers, the New York investment firm started by his father Irving Kahn, the well-known value investor and protégé of Benjamin Graham. For a long time, Kahn Brothers has been one of the top 10 institutional holders of NYCB. It held $71 million worth, or nearly 1% of all NYCB stock, at the latest filing in September.
“It’s a shame because the banking business is a business of confidence,” Kahn tells Barron’s. “The last thing that a regulator should do is upset confidence on the part of the investment community and bank customers.”
The bank hasn’t said its hand was forced by regulators at the U.S. Treasury Dept.’s Office of the Comptroller of the Currency, and didn’t respond to questions about its dealings with regulators.
A spokesperson for the OCC said the agency doesn’t comment on specific banks or supervisory activities.
But Kahn says OCC regulators could have given NYCB time to build capital without having to chop the bank’s common-stock dividend and panic the market.
Kahn Brothers’ holdings in NYCB—and everyone else’s—have tumbled since Jan. 31, when the bank announced a 70% cut in its dividend and a half-billion dollar increase in its loan loss provisions. The bank said its 2023 acquisitions of Flagstar Bank, and assets of the failed
Signature Bank,
had pushed it into the more stringently regulated tier of banks with assets above $100 billion.
Since that news, NYCB stock has sunk from $10.38, to $4.18, after sliding another 7% in Thursday trading.
Kahn Brothers analysts spent nearly an hour talking with NYCB after the Jan. 31 news, and came away comfortable that nothing had suddenly soured in NYCB’s book of commercial real estate loans. Nearly half are loans on rent-regulated apartment buildings.
“Little old ladies in rent-regulated apartments in Queens aren’t going to stop paying their rent,” says Kahn.
Kahn says NYCB had thought regulators would give the bank a year or so—after its government-sanctioned purchase of Signature loans—to build NYCB capital levels up to those of the biggest banks.
“But the regulator said ‘No, we’d like it yesterday,’” Kahn says. “And when your regulator says ‘Jump,’ you ask, ‘How high?’”
So NYCB deeply cut its dividend and shocked Wall Street.
The OCC should have anticipated how the public would react to the forced move, Kahn says. “What they did is foolish, at best,” he says, of the regulator, “and at worst, really, really stupid.”
Kahn believes that NYCB has always been a conservative lender, and that its chief executive Tom Cangemi was steering the bank well. Amid the recent panic, board Chairman Sandro DiNello has also put his hand on the steering wheel. DiNello had previously turned around the troubled Flagstar, says Kahn, and should do fine with the basically sound NYCB.
Kahn Brothers still has a large position in NYCB, and is adding more in some accounts. At $4.18, the stock now sells for barely 40% of the bank’s tangible book value of $10.45 a share.
“NYCB is definitely a Buy,” says Kahn. “Absent this scare, the stock should sell somewhere between $10 and $15 a share.”
Write to Bill Alpert at william.alpert@barrons.com
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