As Signature severs crypto arm, CRE lending to suffer

When FTX collapsed in November, multifamily lender Signature Bank found itself scrambling to reassure investors that its cryptocurrency exposure was minimal.

But the bank’s fourth-quarter results show the crypto crash will have lasting effects on Signature’s commercial real estate lending.

After reporting a $7.4 billion drop in crypto-linked deposits in the fourth quarter — more than half of the bank’s $14 billion total deposit decline — Signature will kiss another $3 billion to $5 billion in those unreliable deposits goodbye by the end of 2023, but “most likely much, much sooner,” said CEO Joseph DePaolo on an earnings call Tuesday morning.

“We’re working hard to get through these digital outflows … as quickly as possible,” said COO Eric Howell.

The bank wants to reduce its exposure to crypto, but DePaolo reiterated that it does not hold cryptocurrency, just U.S. dollar deposits from digital asset clients.

“We do not invest, we do not hold, we do not trade and we do not custody crypto assets,” the CEO said.

To offset those declines, Signature said it would need to pare its lending portfolio by $5 billion to $10 billion. The move seeks to keep the bank’s net interest margin, a measure of profitability, healthy.

Within that, Signature expects its commercial real estate loan portfolio to shrink, though Lowell said not by much. “It will probably be flat to down a little bit,” the COO said.

Read more

New York

FTX crash could hit Signature’s multifamily lending

New York

Signature’s CRE loan growth defies rising rates

New York

Signature Bank to rein in real estate lending as deposits falter

Still, those declines will come as rising interest rates have made it trickier for banks to underwrite commercial real estate deals. The Mortgage Bankers Association this month cut its forecast for CRE originations in 2023, and now predicts a 5 percent dip in 2023.

Signature expects its net interest margin will fall by 10 basis points in the first quarter. That drop comes after it slid to 2.31 percent in the fourth quarter from 2.38 percent in the third.

The metric implies weakness relative to Signature’s competitors: The net interest margin among all FDIC-insured banks was 3.14 percent in the third quarter, according to the FDIC’s quarterly banking profile.

Despite the turbulence last year, Signature posted solid earnings in the fourth quarter, a result of fewer deposits, on which banks pay interest, and growth in loans, on which Signature earns interest.

The firm posted $4.65 diluted earnings per share, a 7 percent gain over the same period last year. For the full year, Signature reported record earnings of $20.76 per share compared with $15.03 in 2021.

Loans increased $452.3 million in the fourth quarter from the last three months of 2021 and jumped by $9.43 billion or 14.5 percent for the entire year.

With Signature unwinding its crypto exposure, analysts on the call asked about the future of its digital payment platform Signet. The technology allowed customers to instantly move funds by converting U.S. dollars to the bank’s digitized currency.

DePaolo said Signature remains committed to the business but insisted that the industry required federal regulation. “Clearly this FTX situation put a lack of confidence in that ecosystem,” DePaolo said.

“When Bernie Madoff happened, that shook the markets. This [FTX collapse] shook the markets,” the CEO added. “So we need the regulators and Congress to get on the same page.”

Signature said it had not been involved in any “meaningful litigation” related to FTX but said it would be “pretty hard to predict” whether it would be involved in any congressional hearings related to crypto.