DBRS Confirms New York Community Bancorp, Inc. at BBB (high) on Acquisition; Maintains Stable Trend

DBRS, Inc. (DBRS) has today confirmed the ratings of New York Community Bancorp, Inc. (NYCB or the Company) and its related entities, including its Issuer & Senior Debt rating of BBB (high). The trend for all ratings remains Stable. The ratings action follows the announcement of the Company’s definitive agreement to acquire Astoria Financial Corporation (Astoria) in a stock and cash transaction valued at approximately $2.0 billion. The transaction is expected to close in 4Q16 subject to regulatory approvals and contingent on shareholder approval by both NYCB and Astoria shareholders. Additionally, NYCB announced a balance sheet restructuring and capital raise, separate from the acquisition announcement, intended to reduce the costs and interest rate risk of its wholesale borrowings.

DBRS’s confirmation is based on the low-risk nature of the transaction that is similar to many of the acquisitions that have historically contributed to building the current franchise. While there is always integration risk, given that Astoria is an in-market transaction with similar lines of business, DBRS anticipates a fairly seamless integration for NYCB. Moreover, NYCB expects the transaction to produce significant accretion of approximately 20% in 2017, as it takes out approximately 50% of Astoria’s cost base, which DBRS views as achievable given the significant overlap of the two banks. Lastly, Astoria’s loan portfolio is comprised of lower-risk assets, although heavily concentrated in real estate, an asset class NYCB understands well. Besides taking a credit mark of approximately 1% less net charge-offs, NYCB is expected to further reduce the risk profile with the sale of approximately $1.0 billion of residential mortgages.

The Stable trend reflects DBRS’s expectations that the announced capital raise to offset the balance sheet restructuring charges will be successful and that the Astoria acquisition is integrated without material customer disruptions. If the acquisition integration is executed poorly, or NYCB announces further material restructuring charges, the ratings would likely come under pressure.

The acquisition of Lake Success, New York-based Astoria adds approximately $15.1 billion in assets, $9.0 billion in deposits and 87 branches largely in Long Island, Brooklyn and Queens New York, all existing markets for NYCB. Additionally, the transaction, on a pro forma basis, pushes the Company over the $50 billion mark to become a D-SIB bank, a designation that the Company was destined to reach organically in 2016. Given that the regulatory burden for a D-SIB institution is considerably greater, NYCB has already been preparing internally to cross this threshold.

The Company also announced that it would be taking a charge of approximately $614 million (after-tax), or roughly five quarter’s worth of earnings, to prepay approximately $10.4 billion of higher cost wholesale funding. To offset the charge, NYCB plans to raise approximately $650 million of common equity, as well as reduce its dividend with management targeting a post-closing pro forma dividend ratio of approximately 50%. Although the restructuring is expected to save approximately $100 million (after-tax) annually in interest expenses while reducing interest rate risk, the charge is material and the equity issuance could potentially limit future financial flexibility. Overall, factoring in the capital raise and the acquisition, pro-forma capital metrics remain sound.

NYCB, a multi-bank holding company headquartered in Westbury, New York reported $49.0 billion in assets as of September 30, 2015.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2015). Other applicable methodologies include the DBRS Criteria – Support Assessments for Banks and Banking Organisations (March 2015) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2015).

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: John Mackerey
Rating Committee Chair: William Schwartz
Initial Rating Date: 13 October 2006
Most Recent Rating Update: 26 November 2014

For additional information on this rating, please refer to the linking document under Related Research.