SIFI-designated banks are subject to greater oversight.

Photographer: Alex Wong/Getty Images

This Bank Actually Wants to Be a SIFI

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.
Read More.
a | A

The too-big-to-fail club has a new member banging at its door at a time when others are falling over themselves to get out.

New York Community Bancorp announced on Thursday that it's buying Astoria Financial, its Empire State neighbor, in an almost $2 billion deal that will seal its status as a SIFI. For those keeping score, that's ``systemically important financial institution'' -- a designation, born of the financial crisis, which signals an entity has grown big enough to warrant stricter government oversight and tougher regulatory requirements including annual stress tests.

For many companies, the SIFI tag is more of a burden than a badge of honor. General Electric is in the process of selling some $200 billion in financial assets to shake it off, while activist investor Carl Icahn said Wednesday he wants insurance giant AIG to break up so it can escape the “onerous excess regulation” that comes with being a SIFI. MetLife, another insurer, has a pending suit against the Financial Stability Oversight Council –- that’s how much it wants to shed the designation.

But for institutions like New York Community Bancorp, which is seeking to grow its loan book as low interest rates squeeze margins, it's hard to avoid bumping up into SIFI territory. In fact, the bank had already been happily preparing for what it describes as “SIFI readiness,” and was expecting to cross the threshold of $50 billion in assets by the second quarter of next year. With the acquisition of Astoria, it will easily shoot past that target, landing at around $64 billion.

The move toward SIFI-dom does have consequences. The bank's shares sank 12 percent Thursday, the biggest drop in six years, partly because some investors believe it should trade closer to the average P/E multiple of other banks that carry the designation. Morgan Stanley pegs that multiple at about 11. (The stock drop also reflected a dividend cut and secondary offering, also announced on Thursday.) Astoria Financial's shares also took a hit, because the deal is being funded almost completely with New York Community Bancorp stock.

That’s not to say that it’s not a good deal for New York Community Bancorp. The purchase price values Astoria Financial at 1.5 times tangible book value, making it one of the less expensive bank deals of late.

Though some of New York Community Bancorp's rivals will follow its path towards the SIFI club, others will balk. For instance, First Niagara Bank -- with $39 billion in assets -- is heading in the other direction. Instead of growing into a SIFI, it's in advanced talks to be acquired by one: Ohio lender KeyCorp, the Wall Street Journal and Bloomberg News reported on Thursday.

One thing regulators have made for sure: one bank’s dream is another’s nightmare. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net