What $NYCB Can Teach Public Company Investors
Publicly traded equities represent an underlying business that generates economic value.
There is always a fundamental reason behind investor ownership of a publicly traded stock, think dividend payments or share price appreciation.
For Regional Banks, investors own the underlying public equity in order to receive dividend payments.
The entire investment thesis and decision starts and ends with the dividend payment.
Any extreme and / or unanticipated change to the dividend will immediately churn the entire shareholder base.
Let us consider the case of New York Community Bankcorp, ticker $NYCB.
The company has churned 86% of its float since earnings on January 31!!! The entire share base has sold in a week!
Summary of What Happened and What Went Wrong
1. Investor Ownership Driven by Dividends.
2. Asset Impairment.
3. Dividend cut to $0.05.
4. Dividend cut was unexpected.
5. Entire shareholder base, 86% of a 668M share float, churns in a week!
All of the subsequent management changes and liquidity press releases are now meaningless.
Once a management team breaks an investor’s mandate, it is nearly impossible to stop the resulting cascade of selling in the underlying shares.
Implications for Public Executives
Public company management teams need to be mindful and recognize that certain unexpected changes, actions, or lack of action, can irreparably harm the business, contrary to popular belief.
Golden Metrics: Management must always be mindful of the primary reason investors own the underlying shares
Dividend Policy: Unexpected changes to dividend policy or other tent-pole policies will cause you to churn your shareholder base in a week!
Communicate the Possibility of Changes: Management needs to communicate that there is a possibility of a change ahead of time; think months or quarters of lead time.
There Can Be Too Much Negative: Too many significant, unexpected economic changes around the business will irreparably harm the business.
Remember, if you fail to telegraph the possibility of change to the core reason for investing in your stock, you will churn your entire shareholder base in a week!
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