Struggling Emigrant Calls Family Its Backstop

US Banker | March, 2010

The parent company of Emigrant Bank of New York is struggling to hang on until real estate asset values in its markets recover.

Though the $16.4 billion-asset company, led by the real estate developer Howard Milstein, insists its problems are under control, analysts paint a bleak picture of a company that could snap under further stress without additional capital.

"The assumption is if the company gets weaker, or if they're forced to raise capital, the Milstein family would pony up the additional funds to bring it in the 'adequately capitalized' status that would make the regulators happy," said Matt Kelley, a senior analyst at Sterne Agee.

Howard Milstein, with his brother Paul, acquired Emigrant Savings Bank in 1986. In 2005, the family formed the holding company, New York Private Bank and Trust, which includes six bank subsidiaries in the New York area and a thrift in Wilmington, Del. With $12.8 billion in assets, Emigrant is by far the largest unit.

Though the company built a successful online banking operation that raked in deposits, it has posted losses of $500 million over the past two years. While a 2008 writeoff of its investment in Freddie Mac is partly to blame, the core problem is asset quality, which has deteriorated sharply. Problem real estate and industrial loans are the main culprit. Fully one-third of Emigrant's commercial and industrial loans are not being paid back, along with 14 percent of residential mortgage loans.

Suzanne Moot, an analyst with M&M Associates in Milton, Mass., said Emigrant may have had little warning, as less than 1 percent of commercial and industrial loans were in nonaccrual status one year earlier.

"These appear to be a whole bunch of loans that went bad in the last 12 months — went very bad," Moot said.

Because New York Private is privately held, it's almost impossible for outsiders to know where the loan portfolio is headed, Moot added.

Yet the company insists its bank and thrift subsidiaries are solid. John Hart, vice chairman of Emigrant Savings Bank, said in a written statement on behalf of the company that "Emigrant Bank and its regional banks have weathered the current adverse banking environment."

He said in the statement that the company has begun working through its problem assets and has significant Tier 1 capital. The parent company received a $267 million investment from the Treasury Department's Troubled Asset Relief Program in January 2009 that it distributed to its subsidiaries. Emigrant Bank reported Tier 1 capital ratio of 12.45 percent as of Dec. 31.

Hart said Emigrant Bank is holding troubled loans until markets recover, and noted it was able to sell $400 million in problem commercial real estate loans in the fourth quarter. He said the company expects classified assets to return to normal levels by the end of 2010.

"While there are a large number of loans with delinquencies, many of these will be reinstated while the vast majority of the remaining will, when foreclosed, not result in losses," he said.

Hart also mentioned the family's substantial wealth in his statement, and noted that the Milsteins had "rescued" Emigrant Bank once before — when the family acquired the bank during the savings and loan crisis.

But rather than planning a rescue this time, Hart said the company is considering large acquisitions, given its "strong foundation and capital position, and other resources as needed from the Milstein family."

Ken Thomas, an independent bank consultant and economist in Miami, said he's doubtful that Emigrant is in a position to buy other banks.