NYCB short sellers stare at $42 million in losses after post-earnings rally, Ortex says
2024.05.01 13:36
By Niket Nishant and Manya Saini
(Reuters) – Traders shorting New York Community Bancorp (NYSE:)’s stock were sitting on more than $42 million of losses on Wednesday after the lender’s better-than-expected profit forecast for the next two years sent shares surging, data from Ortex show.
The rally marked a rare bright spot for NYCB, which has been battered since January end over its exposure to the commercial real estate (CRE).
WHY IT’S IMPORTANT
The banking industry has been a hot favorite for short sellers – traders who profit from a decline in stock prices – after the collapse of three lenders last year stoked fears about the health of the sector.
A strong performance by the NYCB stock, if sustained over the next few weeks, could help ease some of the pressure and encourage more long-term investors to return.
CONTEXT
Hicksville, New York-based NYCB said it was close to selling $5 billion of assets. Its earnings per share forecasts for 2025 and 2026 were also far above analysts’ expectations, according to LSEG data.
The lender also promised to diversify its loan portfolio over the medium term. It will aim to cut down loans to the under-pressure CRE market to the $30 billion range from nearly $47 billion at the end of March, newly appointed CEO Joseph Otting said.
BY THE NUMBERS
Short interest in NYCB stands at 11.3% of free float, the highest among peers of the same size, according to Ortex.
NYCB said it currently trades at about 0.42 times its fully converted tangible book value, much lower than the 1.48 times multiple for banks with assets between $100 billion and $250 billion.
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It expects to close the valuation gap over time as it executes its strategic plan.
KEY QUOTES
“While this year will be a transitional year for the company, we have a clear path to profitability over the following two years,” Otting said.
“As the company remixes, repositions, cleans up a variety of items, we expect the company to post additional quarterly losses in coming periods. However, we believe the market will quickly begin to look past these items and toward the prospective earnings power,” said analysts at Piper Sandler.
MARKET REACTION
The stock climbed as much as 32% to $3.50. At the $3.20 level, short sellers were looking at $42 million in paper losses. That compared to gains of $256 million this year, through Tuesday’s close.
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