Mortgage

The pinnacle of the New York neighborhood takes one other daring step with the determine deal

New York Community Bancorp Chairman and CEO Thomas Cangemi provided plenty of evidence last month that his drive to expand the company's digital banking capabilities would include a deal with a fintech.

Less than three weeks later, Cangemi and the New York community announced a partnership with Figure Technologies of San Francisco. The two companies will work together on a number of blockchain-related initiatives.

The partnership – which includes an undisclosed financial investment in Figure by New York Community – is the latest example of how Cangemi has turned things upside down since he rose to the post in late December.

In 2021, the $ 57.5 billion company announced a deal for Flagstar Bancorp in Troy, Michigan, which, pending regulatory approval, will mark the New York community's first bank acquisition in more than a decade; created a position as Chief Digital Banking Officer; and began the process of transforming from a niche lender to a full-fledged commercial bank.

The deal with Figure "speaks for a bank that has long been in a place with a stagnant strategy," Bank of America's securities analyst Ebrahim Poonawala said in an interview this week.

"When Tom took office, his message to the street was, 'We're going to transform the business model," and Flagstar was part of it, "Poonawala said. "Well, working with someone like Figure suggests that this is a very different New York community than anything we've seen in the last 20 or 30 years."

"This is the guy who understands the business model needs to be transformed, and he's in," he added.

The reorganization of the New York community under Cangemi, who took over the reins after the abrupt resignation of Joseph Ficalora, who was CEO for 27 years, is multi-pronged.

The Hicksville, New York-based company, which has long been a leader in multi-family lending and relies heavily on more expensive certificates of deposit to fund its loans, is now looking to extend more commercial loans. It also plans to tap into its multi-family and commercial borrowers for more cost-effective core deposit growth.

The bank has made progress on the liabilities side of its balance sheet. At the end of June, CDs accounted for 26% of deposits, up from 32% at the end of December.

On the assets side, progress has been slower. As of June 30, commercial home loans accounted for 16% of the company's loan book, while commercial and industrial loans accounted for 9%. These percentages remained largely unchanged compared to the beginning of the year.

The Flagstar deal should help on both sides of the balance sheet, Cangemi said. The acquisition includes Flagstar's mortgage storage business, the second largest in the country. The New York community is looking to cross-sell opportunities by encouraging Flagstar's mortgage storage customers to both take out commercial loans and hold lower-cost deposits with the bank.

At the same time, the New York community is trying to expand its digital banking skills. During the company's second quarter conference call in July, Cangemi told analysts that the bank is "reallocating resources to build a digital platform" that will help it "keep up with the industry."

Changes include the addition of a Chief Digital Officer reporting to Cangemi. The New York community also plans to pursue what are known as banking-as-a-service opportunities that would open up through forging relationships with fintech companies.

With Figure's help, the New York community is hoping to leverage digital ledger infrastructure to expand financial inclusion in banking and lending, lower mortgage costs, and create a faster, more affordable payment system, the company said on Monday in a press release with.

There are plans to use the Provenance Blockchain, an open source distributed ledger for the financial services industry that Figure established to trade consumer credit and sell stocks.

Cangemi was unavailable this week to discuss the relationship with Figure, the company founded in 2018 by Mike Cagney who also helped start Social Finance. In the press release, Cangemi said the agreement was part of the bank's "strategic focus on the operational and cost benefits that blockchain technology can bring to many areas of banking."

The blockchain initiative should bring benefits in connection with the Flagstar merger, said Wedbush Securities analyst Peter Winter. Blockchain technology could help the New York community lower the cost of issuing and servicing mortgages, as well as securitization, which should increase profit on sales margins, Winter said.

That doesn't mean downsizing, said a New York community spokesman who said he couldn't give details of cost-cutting plans because those details were owned by Figure's mortgage service. Figure announced earlier this month that it will merge with Homebridge Financial Services, a non-bank mortgage lender, and partner with Sagent, a fintech software company that will provide core and off-the-shelf service platforms.

Chris Marinac, analyst at Janney Montgomery Scott, said the relationship with Figure will help the New York community as a whole catch up in an industry where technology is rapidly accelerating business.

The company "is forcing itself to change under new leadership," said Marinac.

“I think they have a really interesting situation and this fintech partnership is a sign that I think the factory is leaving very positive steam,” said Marinac.

While it is unclear how the partnership with Figure will affect the bank's profits, what is certain is that the deal "with Tom as CEO reinforces that the company is headed in a different direction," said Winter.

"I think this is just the tip of the iceberg," he said. “We assume that there will be additional announcements about fintech partnerships, new hires to expand and expand digital banking and hopefully a little more about the possibilities with Figure. It's like, 'Hold on.' "

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