NYCB Faces Tough Quarter Amid Multi-Family Loan Pressures

New York Community Bancorp (NYCB) reported a worse-than-expected second-quarter loss, leading to a 16% drop in shares. The bank's issues with multi-family loans and a volatile interest rate environment have worried investors. A mortgage servicing unit sale and a vote of confidence from Steven Mnuchin bring some optimism, but a full turnaround may take longer than anticipated.

New York Community Bancorp reported a second-quarter loss that exceeded Wall Street's bleak expectations on Thursday, mainly due to larger provisions tied to pressures in its multi-family loan portfolio.

The bank's shares plunged 16% despite Flagstar Bank, a NYCB unit, agreeing to sell its residential mortgage servicing business for $1.4 billion. Ongoing issues with rent-regulated multi-family properties in New York have considerably shaken investors' confidence in NYCB, making it one of the worst performers in the S&P 400 mid-cap index this year.

Concerns over NYCB's internal controls and the possibility of a prolonged high-interest-rate environment have further exacerbated investor fears. Former Treasury Secretary Steven Mnuchin's endorsement and the bank's commitment to restoring profitability next year have offered some optimism, yet the latest forecasts suggest the recovery might extend beyond initial expectations.

NYCB has revised down its 2025 profit outlook to up to 5 cents per share, down from a prior estimate of 35 to 40 cents. This year's losses could range between $2.20 and $2.30 per share, significantly worse than the previous forecast of 50 to 55 cents. For the three months ending June 30, the bank lost $1.05 per share on an adjusted basis, far exceeding analysts' average expectation of a 42-cent loss, as per LSEG.

Credit loss provisions rose to $390 million compared to the estimated $210.1 million. In a move to enhance financial health, NYCB is selling off non-core assets. The sale of Flagstar's mortgage servicing unit would bolster NYCB's capital and help it exit a business vulnerable to interest-rate fluctuations. This follows a recent sale of loans to JPMorgan Chase.

NYCB CEO Joseph Otting acknowledged the mortgage servicing business's contributions but noted the associated financial and operational risks in a volatile interest rate environment. Mr Cooper, a non-bank mortgage platform, will acquire the unit, with the deal expected to close in the fourth quarter.

(With inputs from agencies.)