You may have seen another regional bank in the headlines recently, NYCB – New York Community Bancorp.  The trouble with NYCB appears to be isolated. However, we wanted to point out that NYCB owns Flagstar bank which has several branches in Michigan.

If you have a client with uninsured deposits (>$250,000) at Flagstar, you should alert them to the issues with NYCB.   Our advice would be to limit uninsured deposits in any bank to the extent practicable and if a client has uninsured deposits with Flagstar, now would be an opportune time to suggest they transfer those funds to us for investment in a money market fund, NITXX.

A quick recap of the issues at NYCB:

  • Last year NYCB acquired the assets of failing bank, Signature Bank, at auction. The acquisition put the bank over the $100bn asset mark and subjected it to tighter regulation and capital reserve requirements.
  • In NYCB’s Q4 2023 earnings release (Jan 31st), the bank revealed loan losses that were higher than expectations,
  • As a result, NYCB needed to build capital reserves and announced a significant cut to its dividends,
  • The loan losses were centered in office and multifamily properties,
  • On February 29th, NYCB announced material weaknesses in its internal controls, and replaced its CEO.
  • Moody’s & Fitch subsequently downgraded NYCB’s credit rating

Late today (March 6th) NYCB announced a $1bn equity investment that stabilized the stock price.

The bottom line is: you should advise clients not to keep uninsured deposits to the extent they can avoid it. If a client has an uninsured deposit with NYCB or Flagstar, you should advise them to diversify away from the bank. The issues at NYCB do not appear to be affecting the broader regional banking sector, but the operating environment for banks is challenging and is likely to remain that way in the near-term. During this period of uncertainty, holding uninsured deposits is imprudent.