New York Community Bancorp (NYSE: NYCB) stock jumped during intraday trading Friday as the troubled lender revealed plans to implement a 1-for-3 reverse stock split in July.
New York Community Bancorp (NYCB) has decided to move forward with a 1-for-3 reverse stock split, slated for mid-to-late July following board approval on Wednesday. Shareholders previously endorsed the split during the annual meeting held on June 5.
Rationale Behind Companies Opting for Reverse Stock Splits
A reverse stock split is a corporate action where a publicly traded company reduces the number of its shares on the market while increasing its stock price, maintaining the overall market valuation. For instance, if a company carries out a 1-for-2 reverse stock split, it would reduce its 10 shares worth $10 each to 5 shares worth $20 each, while keeping the market capitalization at $100.
Companies often undertake reverse stock splits to boost their share price, making the stock more attractive to investors who might be hesitant to buy lower-priced shares. Additionally, reverse stock splits can help companies meet compliance requirements, such as avoiding delisting from stock exchanges. For example, electric vehicle maker Nikola Corp. (NKLA) executed a 1-for-30 reverse stock split on June 24 to prevent delisting from the Nasdaq.
This action contrasts with a stock split, where companies increase the number of shares in the market to lower the share price, making the stock more accessible to a broader range of investors. Recent companies that have undertaken stock splits include Chipotle (CMG), Nvidia (NVDA), Amazon (AMZN), and Walmart (WMT).
NYCB Challenges
New York Community Bancorp (NYSE: NYCB) shares have plummeted by about 70% this year due to operational concerns and risks associated with its commercial real estate loan portfolio, particularly those related to multi-family homes.
At the end of the first quarter, two credit agencies downgraded the bank, citing “material weaknesses” in its controls. The bank also reported an unexpected $2.4 billion loss and underwent leadership changes, including the removal of its CEO of nearly three decades. Moreover, NYCB secured a $1 billion cash infusion from a consortium of lenders to strengthen its balance sheet.
Last year, NYCB acquired assets from the failed Signature Bank, pushing its combined assets over $100 billion and attracting greater regulatory scrutiny.
New York Community Bancorp (NYSE: NYCB) Stock Reaction
NYCB stock surged 5.92% on Friday, closing at $3.22, marking a 5.23% increase for the week. The trading volume was 128,390,376 shares, significantly higher than the average daily volume of 18.13 million.
