NY Community Bancorp's Problems in the Rent-Stabilized Market

Joe Weisenthal (0:00)

Hello, Odd Lots listeners. You are about to hear a conversation about the troubles at New York Community Bancorp. We recorded this interview on February 6th, and a statement to the market NYCB said that its deposits have increased since the end of last year and that liquidity remains ample. A spokesperson for the company did not respond to a separate request for comment from Odd Lots. And now here is our episode on New York Community Bancorp.

And welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:38)

And I'm Tracy Alloway.

Joe Weisenthal (0:39)

Tracy, banking troubles again. Obviously, we had that little, I don't know, mini crisis, I think we-

Tracy Alloway (0:46)

Kerfuffle.

Joe Weisenthal (0:46)

Kerfuffle last March with SVB and a couple other banks. And then recently, I think just last week, we're recording this Tuesday, February 6th, another one.

Tracy Alloway (0:56)

That's right. So we saw New York Community Bancorp, NYCB, their shares fell something like almost 40% in a single day after they released a bunch of announcements. So let's see, I'm trying to remember all of them.

So they missed on earnings per share. They cut their dividend and they increased their reserves for bad loans. So basically the provisions or the amount of money they set aside to cover souring credit. And of course, this set off a wave of conversation and analysis about how much of that issue has to do with NYCB specifically, or whether it's saying something broader about the outlook for these loans. And I should just say that in its statement, NYCB specifically cited commercial real estate and multifamily as well, which is sort of the, I always call it the forgotten CRE, because everyone focuses on offices, but multifamily also falls into the CRE category.

Joe Weisenthal (1:59)

Yeah, right. We did that episode a few months ago, I think in October, we did an episode on multifamily, because we know that there was just this incredible boom, right, in 2021, and social media influencers were like raising money on Instagram for Sunbelt CRE, and so there is this big question about the category more broadly.

This is, of course, not a Sunbelt story, it's New York Community Bancorp, but it gets this question of like, oh, is this something idiosyncratic to the bank, or is this broader, are we gonna see multifamily problems elsewhere? It feels like each one of these banks that's gotten into trouble over the last couple of years, there is this furious debate, it's like, oh, it's just idiosyncratic, it's just Silicon Valley, it's just crypto exposure, it's just New York, but then eventually, you have enough idiosyncratic, so people start to go worried, they're like, are there things going wrong? Are there similarities with other banks?

Tracy Alloway (2:57)

Yeah, and it's funny, you mentioned the multifamily episode, I think that was with Lee Everett.

He was basically saying that was the next shoe to drop in the troubled CRE category. But we did actually do an episode even before then, titled, The NYC Landlord Who Says The Golden Age of Being a Landlord is Over.

Joe Weisenthal (3:19)

That's right. So we did do a New York specific one, our guest then Ben Carlos Thypin, local real estate guy who owns residential real estate. He also does some data stuff and other things. And he basically came on, he's like, look, my family has been in this business of renting out apartments for a long time and the business is going bad. This is not a business I really want to be in it anymore. He mentioned that he would be selling off some or all of his assets over time. I think he specifically said he wouldn't be doing a fire sale or like a mass liquidation, but then he wanted to get out of the business.

He also said that he was interested in ways to essentially not just get out of the business, not just remove his de facto long position, but seeing if there were ways to bet on the downside.

It was this, there is like a combination of like, okay, yimbyism in New York seems to be on the rise, so there perhaps is going to be more supply, plus a sort of shifting political landscape. But I think this is key, such that regulations will make life harder for landlords.

Tracy Alloway (4:19)

Yes, this is the return to, I mean, it never went away completely, but a new found popularity of rent control and the issues that maybe causes for landlords. And of course, I mean, the backdrop to all of this is that interest rates have gone up spectacularly. And so why deal with tenants and policy when you can just put your money in a money market fund and earn 5%.