New York Community Bancorp Inc stock fell. sharply on Thursday after the bank said it had “material weaknesses” in its accounting protocols and announced an immediate change in leadership — the latest difficulties for a bank struggling with exposure to the struggling commercial real estate market. .
Shares of the company — which operates Flagstar Bank in several states and picked up some of the leftovers of failed Signature Bank last year — fell 17.8% after hours.
New York Community Bancorp NYCB,
It said it had appointed Alessandro Dinello as its new CEO, a decision that came into effect immediately after Thomas Cangemi resigned from his position after 27 years there. Cangemi resigned on February 23.
The leadership change came with some resistance among the company's board of directors. Hanif Dahiya also resigned as chairman and board member, saying in his resignation letter that he “does not support the proposed appointment” of DiNello. Marshall Lux has been appointed Chairman of the Board of Directors, effective immediately.
“My mission as president and CEO, along with the board, is to continue our transformation into a larger, more diversified commercial bank,” DiNello said in a statement.
“Although we have faced recent challenges, we are confident in the direction of our bank and our ability to deliver for our customers, employees and shareholders in the long term,” he said. “The changes we are making to our Board of Directors and leadership team reflect a new chapter being implemented.”
The bank's shares came under fire last month after it reported a surprise quarterly loss and cut its dividend. The administration said at the time that it was allocating more money to mitigate “office sector weakness.” The rise of remote and hybrid work during the pandemic has turned the office space and commercial real estate market upside down.
The material vulnerability declaration “is about stress tests — not borrowers defaulting,” said Christopher Marinac, research director at Janney Montgomery Scott.
“They have tagged loans with higher interest rates and borrowers' financial position is weaker in a higher interest rate environment,” Marinac said during a phone interview with MarketWatch. “I still think it's a solvable problem. It's just going to take some time.”
Marinac continues to rate NYCB stock as a Buy. “We feel the tangible price of the book [ratio] Still very attractive. It is a tumultuous situation day in and day out. “We still believe the company will make money this year.”
While management evaluated the bank's internal controls, it identified “material weaknesses” in its internal controls related to loan reviews, the company said in a filing Thursday. It said the deficiencies resulted from “ineffective oversight, risk assessment and monitoring activities.”
KBW analyst Christopher McGroty said the disclosure of the material weakness amounts to “an additional layer of uncertainty” for the bank and that his company remains on the sidelines because of it. He stuck with a market perform rating for the stock.
“The immediate focus is two-fold, from our perspective: 1) file the 10-K, and 2) provide a strategic update once the loan portfolio review is complete,” McGroty said.
Revealing a material weakness is bad for any company, but it's especially troubling for a bank that “had a terrible quarter” recently, Karen Feinerman, CEO of Metropolitan Capital, told CNBC.
“This can't be good, for so many reasons,” she said.
Earlier this month, Moody's downgraded the bank's credit rating to junk, citing difficulties in commercial and multifamily properties subject to rent control.
“New York Commercial Bank's core historical commercial real estate lending, and significant and unexpected losses at its New York office and multifamily properties, could create potential sensitivity to the trust,” the company said.
The bank also said it was unable to file its annual report on time, as it revises figures related to the purchase of assets of the former Signature Bank and other matters. New York Community Bancorp said in the filing that it “does not currently expect” its financial statements in its 2023 annual report to differ materially from those reported in a Feb. 29 amendment.
Steve Gelsey contributed to this story.
