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What You Need To Know About New York Community Bank’s Troubles

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New York Community Bancorp’s (NYCB) shares plunged nearly 25% Friday, a day after the company admitted to identifying “material weaknesses” in controls, reported a surprise write-off of an additional $2.4 billion loss and sacked its chief executive of nearly 30 years.

Here’s what you need to know about the ailing bank’s troubles:

 

Bigger loss and “material weakness” in controls

New York Community Bancorp announced that it had identified “material weaknesses” in the company’s internal controls related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities.

“This review of internal controls could lead to additional CRE-related reserve building, particularly related to the company’s NYC rent-regulated multifamily exposure,” Wedbush analysts wrote in a note Friday. (More on commercial real estate and regulated multifamily building exposure below.)

It also tacked on an additional $2.4 billion loss via a goodwill non-cash impairment charge to the $260 million fourth-quarter shortfall it reported in January.

After the disclosure, Fitch Ratings downgraded the bank saying the “remediation of the material weakness will be executed over the near term.”

 

Incomplete Information

Analysts at Piper Sandler fear that since the assessment is incomplete, there could be more bad news in store.

“We fear that there could be additional issues that get raised as a new team takes the reins. None of that gives us comfort in recommending to investors that they should buy the stock,” they wrote in a note Thursday.

Since Moody’s downgraded NYCB’s credit rating in early February, the bank has not provided more information about its deposits, which is leading analysts at DA Davidson to infer that they have fallen.

“The question is by how much? And will likely be down even more on Friday,” DA Davidson’s Peter Winter wrote in a research note.

 

Reading Too Much Into CEO Change?

The bank also replaced CEO Thomas Cangemi, who has been with the company for nearly three decades, with former Flagstar Bank CEO Alessandro DiNello. New York Community Bank acquired Flagstar in December 2022.

While a top-level executive shake-up can sometimes make investors nervous, analysts were not surprised.

“During the investor call on February 7, with Sandro answering 99% of investor questions, it was pretty clear that in addition to becoming elected to executive chairman, Sandro was taking over the day-to-day operations of the company,” DA Davidson’s Winter wrote. “So it comes as no surprise that Tom stepped down from the bank as these issues and extremely poor 4Q results where under his watch.””

Keefe, Bruyette & Woods analysts were similarly unfazed by the shakeup, saying, it “shouldn’t be all that unexpected given Mr. DiNello was appointed Executive Chairman on Feb. 6.”

 

What’s Ailing NYCB?

NYCB has a big red flag that many other regional banks don’t have: an $18.3 billion portfolio of loans made to rent-regulated multifamily buildings in New York City. That equaled roughly 22% of all of the bank’s loans at the end of December.

High interest rates, persistent inflation and plummeting property values are putting owners of such buildings in a bind, jeopardizing their ability to pay back loans. Add to that, the city’s strict 2019 rent stabilization legislation, which basically makes it harder for landlords to hike rents in order to pay for things like renovations.

“Valuations for many buildings are dipping below the outstanding principal balances on related mortgages,” wrote David Chiaverini, an analyst at Wedbush Securities, in a February note.

He outlined an anecdote of a real estate broker who purchased a rent stabilized building in 2017 for $12.5 million, and sold it last year for $6 million after pouring $1 million into renovations, implying all of the owner’s equity was erased and the bank also took a loss on the loan.

 

NYCB Is Not Alone 

Almost a year ago, a string of bank failures put regional banks in focus. Exposure to commercial real estate loans was hailed as the next big risk to such banks, which were scrambling to retain customer trust and deposits.

While most of the alarms were sounded around loans for office properties, risks presented by loans to multifamily rent-stabilized properties became apparent after NYCB’s struggles came to light.

Regulators and analysts have so far categorized NYCB as an outlier but have admitted that loans to rent-regulated multifamily units present a broader risk to other exposed banks as well.

A lot of commercial real estate loans, including those for multifamily units, are starting to come due, but high interest rates are making it harder to refinance them.

“I’m concerned. I believe it’s manageable although there may be some institutions that are quite stressed by this problem,” Treasury Secretary Janet Yellen told the House Financial Services Committee in early February.

 

NYCB Could Shore Up Liquidity Via Asset Sale Like Others Before

“They have to build liquidity and to build capital and they have to attempt to reduce concentration,” Chris McGratty, managing director at Keefe, Bruyette & Woods said in a February phone interview prior to the recent announcements. “What they need is time.”

The bank is likely to sell non-core assets and reduce risk-weighted assets. “Basically, everything is on the table,” McGratty said. He cited PacWest as having navigated last year’s difficulties, first through asset sales before it was finally sold to Banc of California (BANC).

 

NYCB Depositors May Breathe Easier Than Investors, For Now

While investors may have a hard time digesting the wild ride that NYCB stock has been on, depositors of NYCB should remember that the Federal Deposit Insurance Corporation (FDIC) provides deposit insurance for up to $250,000 worth of deposits.

As of February 6, roughly 72% of NYCB’s $83 billion total deposits were FDIC insured. Uninsured deposits, which likely exceed the $250,000 deposit insurance limit, stood at $22.9 billion.

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

Companies in this story: (TSX:T)

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

The Canadian Press. All rights reserved.

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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