Watchdog, Better Markets, Investigates the Bank that Has Lost 65 Percent of Its Market Value in Two Months and Was Downgraded to Junk by Moody’s

[Gunnar Larson]

https://wallstreetonparade.com/2024/03/watchdog-better-markets-investigates-the-bank-that-has-lost-65-percent-of-its-market-value-in-two-months-and-was-downgraded-to-junk-by-moodys/


By Pam Martens and Russ Martens: March 4, 2024 ~

Frightened Wall Street TraderThe widely respected banking and Wall Street
watchdog, Better Markets, has a new report out on the latest teetering bank
holding company, New York Community Bancorp (ticker NYCB). The title of the
well-researched report pretty much says it all: “A Frankenstein Monster
Federal Regulators Created.”

NYCB has lost 65 percent of its stock market value year-to-date and was
downgraded to a junk credit rating by Moody’s after the stock market closed
on February 6. Moody’s wrote in its downgrade that a third of the bank’s
deposits lack FDIC insurance.

NYCB’s rapid share price descent began on January 31 when the bank filed an
8K form with the SEC indicating a $260 million net income loss in the
fourth quarter; a dividend cut from 17 cents to 5 cents; and a $552 million
provision for credit losses on commercial real estate – an area of growing
concern by the credit rating agencies.

The facts in the Better Markets report are astonishing in terms of what
passes for federal bank regulation today. The Better Markets researchers
write as follows:

“In late 2022 and early 2023, the federal banking regulators inexplicably
approved not one, but two, mergers for NYC Bancorp in rapid succession.
First, in December 2022, Flagstar was acquired by NYC Bancorp and at the
same time Flagstar acquired [New York Community Bank]. Then, only about 100
days later, Flagstar was selected as the winning bidder by the FDIC to
acquire the failed Signature Bank (‘Signature’). A bank acquiring and
integrating any one of these transactions in isolation would be challenging
under the best of circumstances, it is inexplicable that the banking
regulators allowed them in tandem under extremely stressed conditions.”

And this:

“…over the course of just two quarters, Flagstar’s two acquisitions
quadrupled its asset size, from $25 billion on September 30, 2022, to $123
billion on March 31, 2023. It also more than doubled its employee count,
from about 2,800 in September 2022 to 6,800 in March 2023.”

It should be noted that rapid asset growth was cited by federal banking
regulators as a key factor in the collapse of Silicon Valley Bank, which
set off a banking panic and bank runs in the spring of last year. That
panic resulted in the second, third and fourth largest bank failures in
U.S. history.

The Better Markets investigation points the finger at the federal regulator
of national banks, the Office of the Comptroller of the Currency (OCC), as
a key player in the making of this Frankenstein bank. (National banks are
those allowed to operate across state lines.)

What happened was that when this bank didn’t initially get merger approval
from its primary federal regulator, it simply switched its primary
regulator to the OCC and got its merger approved.

Better Markets calls this “shocking and literally unbelievable,” writing as
follows:

“…The American people rely on the banking regulators to protect them, and
the broader financial system and the facts related to this situation
suggest unacceptable failures in these areas.

“The apparent lack of regulatory coordination and the ability of a bank to
switch regulators and receive a different decision on a merger application
is shocking and literally unbelievable. However, what is worse is the
apparent willingness of regulators to overlook all that and racial
discriminatory conduct by merger participants on multiple occasions in
approving the final merger transaction. The American people deserve better
from their financial regulators, and financial stability depends on it.”

The grimy fingerprints of the OCC were also at play when it approved the
purchase of the failed First Republic Bank by the riskiest and largest bank
in the United States – JPMorgan Chase – on May 1 of last year.

On July 12 of last year, Senator Elizabeth Warren, Chair of the Senate
Banking’s Subcommittee on Economic Policy, held a hearing on “Bank Mergers
and the Economic Impacts of Consolidation.” Warren had this to say during
the hearing:

“When First Republic Bank collapsed in April, the bank was ultimately sold
to the biggest bank in America, JP Morgan Chase. That sweetheart deal cost
the Federal Deposit Insurance Fund $13 billion. Meanwhile, overnight, the
country’s biggest bank got $200 billion bigger. And what happened to the
regulators? The Acting Comptroller of the Currency, Michael Hsu, rubber
stamped the deal in record time. When I asked Mr. Hsu at a hearing in May
to explain how this merger was approved, he was unable to provide a clear
answer.

“But the overall picture gets worse. Instead of inattentive regulators who
don’t use their tools to block increasing consolidation, leaders within the
Biden Administration seem to be inviting more mergers. In a May 2023
statement before the House Financial Services Committee, Acting Comptroller
Hsu reassured banks that the agency would be ‘open-minded’ while
considering merger proposals….

“Treasury Secretary Yellen recently warned that the banking ‘turmoil’ from
the collapse of Silicon Valley Bank, Signature Bank, and First Republic
might lead to more mergers and that regulators would be – quote – ‘open to’
them. Then the New York Times also reported that Secretary Yellen privately
told big banks that she would, and I quote, ‘welcome more mergers.’ ”

At the hearing, Warren called this lax position by regulators to be
“stunningly wrongheaded” and “courting disaster.”

Tens of millions of Americans are sleepwalking their way to the next
banking crisis. If you agree with Wall Street On Parade that the current
banking structure in the U.S. represents a threat to national security and
economic stability, please contact your U.S. Senators today via the U.S.
Capitol switchboard by dialing (202) 224-3121. Tell your Senators to hold
immediate hearings on the Fed’s non-stop bailouts of the banking sector and
demand the restoration of the Glass-Steagall Act to separate Wall Street’s
trading casinos from federally-insured commercial banks.
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