FINDING GEMS IN THE WRECKAGE — AN OPPORTUNITY IN REGIONAL BANK NYCB “ The Arora Report Stock Market News ”

By Nigam Arora & Dr. Natasha Arora

Signal Limited is a Signal(s) with a great record in similar situations but does not meet all of the stringent criteria for a Signal. Typically Signal Limited has higher risk-reward compared to a Signal over the short term.

Finding The Gems

After the fall of Silicon Valley Bank (SIVB), Signature Bank (SBNY), and Silvergate (SI), stocks of regional banks have been wrecked. In many cases, babies have been thrown out with the bath water. The task for prudent investors is to pick gems in the wreckage.

The Difficulty

However, it is not an easy task because banks’ balance sheets are somewhat opaque. Often, only regulators and the bank’s management know what is going on.

The Potential Gem

New York Community Bancorp (NYCB) is a potential gem. How do we know this? Regulators have just allowed NYCB to buy certain assets of Signature Bridge Bank. NYCB is buying $12.9B worth of loans and the assumption of $34B in deposits.

The thinking is that regulators would not have allowed this if NYCB had problems on its balance sheet like many other banks.

$2.7B Potential Windfall

In addition to gaining $34B in deposits, NYCB is buying the loans at a $2.7B discount. Assuming these loans are ultimately paid, this is a potential big windfall for NYCB. Even if there are delinquencies in these loans, $2.7B appears to provide enough cushion.

Caution

As always, caution is warranted because these are complex transactions. We believe that our logic is sound, but there is no guarantee that regulators and bank management know all of the potential problems. For this reason, risk control is important.

Zones

The buy zone is 🔒 ( To see the locked content, please take a 30 day free trial). The maximum recommended quantity is 25%. Consider scaling in with small tranches. To understand scaling in, please see the Trade Management Guidelines. The Trade Management Guidelines are billionaire and hedge fund techniques that all prudent investors should learn and use.

The mental stop zone is 🔒.

The target zone s 🔒.

This is a medium to long-term position.

Risk Control

The best risk control is a combination of the following:

• Total quantity. Please see the section “The First Line Of Risk Control” in the Trade Management Guidelines.
• Scaling in with small tranches.
• Scaling out in the stop zone.

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Originally published at https://blog.thearorareport.com on March 22, 2023.