Flagstar CEO says his bank could be ‘attractive’ M&A target

Flagstar Financial, which is in turnaround mode after a $1 billion rescue last year, could be an “attractive” acquisition target, CEO Joseph Otting said Tuesday.

The company formerly known as New York Community Bancorp is currently focused on organic growth in order to become “a strong regional bank in America,” Otting said at an industry conference, his first such appearance since taking the helm last April.

Once the Long Island-based bank clears certain hurdles, however, it may draw the eyes of potential buyers, he said.

“Organic [growth] is always the best in my mind, and that’s really where we’re going to put the gas pedal on,” Otting said. “But I do think … we would also be viewed as a very attractive franchise once you can really focus on, ‘Hey, the credit issues are behind them, they’re growing their [commercial-and industrial loan book], their margins are back, and they’re profitable.'”

The company’s retail and private-bank footprint could be of particular interest, he added.

“We have a California, Arizona, Florida, New York, New Jersey, Ohio, Michigan and Indiana franchise that, for a lot of banks, is pretty attractive, either because you’re in-market consolidating or you’re getting new geographic areas,” he said.

Otting is nearing his one-year anniversary at the helm of the $100.2 billion-asset Flagstar, which he’s trying to bring back from the brink of disaster. In early 2024 the company reported a sizable quarterly loss, signaled trouble in its commercial real estate loan book and slashed its dividend, sparking a 37% single-day decline in its share price. 

The sell-off continued for weeks as investors remained skeptical about the company’s loan books and the potential for a deposit run. Otting, who was Comptroller of the Currency during the first Trump administration, and Steven Mnuchin, who was Treasury Secretary at the same time, stepped in with the $1 billion investment, which bolstered the company’s capital levels. 

Otting and Mnuchin have experience in rehabbing troubled banks and then selling them. The duo previously turned around the failed IndyMac Bank and sold it for a large profit.

Otting made reference Tuesday to his past experience.

“We’re pretty adept at buying banks,” he said, referencing not only IndyMac, which was renamed OneWest Bank and sold to CIT Group, but also his time at Minneapolis-based U.S. Bancorp, where he led a number of the company’s acquisitions. 

“It’s a skill set we have,” he said.

During Flagstar’s fourth-quarter earnings call in January, Otting said the company is making progress in its recovery and predicted it would turn a profit in the fourth quarter of this year.

The company has reported four consecutive quarters of losses, starting in the first quarter of 2024. But its losses during the fourth quarter were narrower than in the earlier three-month periods.

Now that Flagstar has made large reductions to its noncore assets, including selling its mortgage warehouse business to JPMorgan Chase, it is focused on growing its commercial and industrial loan book, shrinking its exposure to commercial real estate loans and bringing in more lower-cost deposits, all while overhauling its risk management and governance infrastructure. 

On Tuesday, Otting said he sees an opportunity to provide great service to clients. That niche is available, he indicated, because banks that had been known for offering high levels of customer service — Silicon Valley Bank and First Republic Bank, which failed in 2023; MUFG Union Bank, which was sold to U.S. Bancorp; and Signature Bank, parts of which were acquired by New York Community — are no longer around.

“Our … whole kind of strategic plan is to compete where people view us as a really high-quality service provider,” Otting said. “Those four key banks that really defined high-quality service have all kind of evaporated, and in my mind, there’s a role to be played in that space.”