Banks Battle Weight Issues
By SAABIRA CHAUDHURI CONNECT
Updated July 22, 2014 12:57 a.m. ET
Most chief executives want their companies to grow. Joseph Ficalora isn’t so sure.
Mr. Ficalora is CEO of New York Community Bancorp, NYCB -0.26% a lender in Westbury, N.Y., with $47.6 billion in assets as of the end of the first quarter. The bank is projected to reach the $50 billion mark by the end of the year if it continues to expand at its current rate.
But with that milestone will come myriad headaches. Once the bank reports assets of more than $50 billion on average for four quarters in a row, NYCB, as it is known, will be large enough to be considered “systemically important” by regulators. That status will require it to comply with stiff rules on capital, submit to yearly “stress tests” and create a road map to wind down the bank in the event of a crisis, moves that will add to its costs. As a result, Mr. Ficalora says NYCB is restraining its lending growth, since loans amount to assets.
The rule characterizing bank holding companies over $50 billion as systemically important is part of the regulatory overhaul that followed the financial crisis and is aimed at keeping a closer eye on banks whose potential problems could endanger the broader financial system.
But some critics argue that the $50 billion threshold is too low, catching companies, like NYCB, that are far from financial giants.
“Fifty billion dollars is almost ridiculously low to be subject to these regulations,” said Camden Fine, CEO of the Independent Community Bankers of America. “A $50 billion or even a $70 billion bank should not have to jump through those hoops.”
The issue is on regulators’ radar. Federal Reserve governor Daniel Tarullo in a May speech suggested it might make sense to raise the threshold to $100 billion from $50 billion for applying certain rules, on the grounds that the “elaborate requirements” of the stress-testing process seem unnecessary for banks under $100 billion. As of March 31, 99.5% of FDIC-insured banks had assets of $50 billion or less.
Mr. Ficalora, whose bank reports second-quarter results Wednesday, has decided he doesn’t want NYCB simply to edge over $50 billion.
“We’d prefer to jump through the $50 billion mark with a large deal,” he said in a recent interview. His goal is to grow to as much as $80 billion in assets in one fell swoop. Otherwise, he says, the avalanche of new regulatory burdens that come with the milestone won’t be worth the benefits.
A deal of that size would be a notable achievement for Mr. Ficalora, who next year will have spent 50 years with the company. The 67-year-old executive started in 1965 as a teller at Queens County Savings Bank, which later became NYCB.
Not many banks are hovering around the $50 billion mark, but Mr. Ficalora’s plight is shared by John Thain, the Wall Street veteran who now runs CIT Group Inc., CIT +0.48% a commercial lender with $48.6 billion in assets as of March 31. CIT reports second-quarter earnings—and will release an updated asset figure—Tuesday.
Mr. Thain recently told investors he was looking for a significant deal so that his firm jumps comfortably over the $50 billion level. A representative of CIT declined to comment.
Representatives for the U.S. Federal Reserve and the Federal Deposit Insurance Corp. said they don’t comment on specific banks.
Mr. Ficalora, who took the reins at NYCB in 1993 and shepherded it through the financial crisis, has tried before to strike a big deal.
According to a person familiar with the matter, NYCB in 2012 asked its regulators for permission to buy Hudson City Bancorp Inc., HCBK +0.21% but a deal never materialized because Hudson City picked larger suitor M&T Bank Corp. MTB +0.32% A representative of Hudson City didn’t respond to requests for comment.
The biggest uncertainty for NYCB shareholders is the dividend they currently receive. NYCB has paid shareholders about 93% of its earnings in dividends over the past 12 months. But the Federal Reserve has said any requests by the biggest banks for dividend-payout ratios above 30% of after-tax net income will receive particularly close scrutiny.
According to Mark Fitzgibbon, an analyst with investment bank Sandler O’Neill + Partners, concern over the dividend has helped send NYCB’s stock down 7.4% this year, compared with a roughly 1.8% gain for the KBW Bank index.
If NYCB were to strike a deal to cross the $50 billion mark, Mr. Ficalora has said it would do one “with the expectation that we’d be able to stabilize or actually increase our dividend.”