It's rare that a bank gets paid to be an acquirer.
That is what would happen under an agreement announced Friday by New York Community Bancorp. It would assume $2.3 billion of deposits from Aurora Bank FSB — the former mortgage arm of Lehman Brothers — and be paid $24 million by Aurora to do so.
Aurora Bank's servicing unit called Aurora Loan Services is one of the country’s largest RMBS master servicers.
The novel agreement would provide New York Community, a $42 billion-asset bank based in Westbury, N.Y., with some cheap funds that can be used to retire debt and make loans, its president and chief executive, Joseph Ficalora, said in an interview.
"It's an interesting deal. There are very, very few deals in which you end up getting paid to take the deposits," Ficalora said. "They have an immediate need to sell."
Aurora, of Wilmington, Del., is being wound down as part of Lehman's 2008 bankruptcy process.
New York Community may use the certificates of deposits and money market accounts assumed from Aurora to retire as much as $1 billion in bonds that mature in coming months, Ficalora said.
The deposits carry much lower interest rates than what New York Community pays its existing depositors. The lifetime cost of the deposits New York Community would acquire is about 20 basis points, he said. New York Community's cost of deposits is about 64 basis points.
"So this is significantly less," Ficalora said, adding that the funds cost less "than any alternative funding that we have."
The deal is expected to provide an immediate — if undetermined — boost to profits, he said. Regulators must approve the deal, which is scheduled to close in the second quarter.
New York Community intends to treat Aurora's deposits as short-term funds. They are mostly brokered and non-brokered certificates of deposits collected online from people all over the country who may or may not renew them as they mature.
"It is a source of liquidity that provides an opportunity for us to make money and establish deposit relationships that may have tenure," Ficalora says. "The money hasn't run off in the last couple of years, so it is pretty sticky."
New York Community likely would remain free to do other deals since this one includes no assets to integrate.
"There are going to be plenty" of opportunities, Ficalora said. "We get to see everything."
But "we're not going to get involved in complex, small deals," Ficalora added.
Sandler O'Neill & Partners advised New York Community. Keefe Bruyette & Woods and Deutsche Bank Securities advised Aurora Bank.
This is a forced sale.
The $4.3 billion-asset Aurora and its servicing unit, Aurora Loan Services, survived Lehman's bankruptcy and have been up for sale on orders from Lehman's bankruptcy trustee. Its mortgage operations began winding down in February because of a lack of buyers. Aurora closed its Missouri correspondent lending division earlier in March and agreed to sell $63 million of mortgage servicing rights to Nationstar Mortgage and its affiliate, Newcastle Investment Corp.
Like other thrifts, New York Community has tended to rely on wholesale funding, which can be a more expensive and less reliable source of funding than simple checking and savings accounts. So its expansion strategy through the years has been to stay healthy and buy community banks for their deposits when the economy falters.
New York Community currently has 242 branches in the New York region and Ohio, Florida and Arizona after purchasing Desert Hills Bank of Phoenix in March 2010 and Amtrust Bank of Cleveland in December 2009. Both were failed bank deals in which New York Community paid no deposit premium.
New York Community specializes in mortgages to New York-area apartment building owners, a relatively stable but competitive market experiencing an uptick in demand.