This coming Monday, Joseph R. Ficalora, the President and Chief Executive Officer of Westbury, NY-based thrift New York Community Bancorp, Inc. (NYCB) will speak at the Barclays Global Financial Services Conference in New York City. I haven't been invited, but as I have written articles on NYCB for Seeking Alpha in March and August of this year, I thought it would be useful to put forth five questions I'd be interested in hearing Mr. Ficalora respond to. Here they are:
Question 1: As of the market close on Thursday, NYCB's market cap was $6.5 billion. Short interest in NYCB on August 15th was 9.18% of shares outstanding, the second highest among the 21 banking institutions with market caps over $5 billion. Only M&T Bank's (MTB) short interest is higher (9.20%). The median short interest for this peer group is 1.34%.
Without dismissing the NYCB short sellers as lunatics, can you explain what they expect will happen, and then explain why it won't happen?
Question 2: The mean 2013 sell-side EPS estimate for NYCB is currently $1.05. The mean estimate for 2015 is $1.09. If analysts on average think that NYCB will grow earnings by only 1.57% on an annually compounded basis, is NYCB's high dividend yield (6.8% as of Thursday's close) the only compelling reason to own it? Said another way, isn't NYCB basically a bond?
Question 3: Given that NYCB's return on average tangible common equity is an attractively high 16%, well above NYCB's cost of equity capital, wouldn't cutting the dividend, retaining capital and growing faster create more shareholder value than paying out around 90% of EPS as dividends, especially when a typical bank/thrift dividend payout ratio is 40-50%?
Question 4: Page 34 of NYCB's investor presentation on Q2 2013 earnings cites NYCB's impressive total investor return of 3,415% from the November 23, 1993 IPO date through June 30, 2013. SNL Financial LC calculates the return as a considerably lower 2,649%. But leaving this aside, if NYCB's three biggest return years were 1997 (96%), 2003 (81%) and 1996 (63%), the most recent of which was nearly ten years in the past, why are you still asking investors to congratulate you for them?
Question 5: Page 15 of the investor presentation for the $1.6 billion Roslyn Bancorp acquisition (NYCB's largest deal, announced in June 2003) predicted 10% cash EPS accretion in 2004 from the deal. But in reality, EPS fell by 19% in 2004 and then by another 18% in 2005, in a benign macro environment. Was this because of problems within NYCB or Roslyn, and if the answer is the latter, does that make you cautious about large acquisitions?
I continue to be fascinated by the question of how banks and thrifts assess their performance, and whether they all do it in a consistent, rigorous, rational way. You'd like to think that they do, but the public comments of their CEOs sometimes imply otherwise. I remain open to the idea that I might be wrong about NYCB, that in fact it is poised for explosive, acquisition-fueled growth in earnings and stock price. Good answers to the above questions might persuade me. I look forward to reading a few in the transcript of Mr. Ficalora's presentation.