New York Community Bancorp Inc.’s stock fell sharply Thursday after the bank said it had “material weaknesses” in its accounting protocols and announced an immediate leadership shakeup — the latest difficulties for a bank struggling with exposure to an ailing commercial real-estate market.
Shares of the company — which operates Flagstar Bank in several states and picked up some of the leftovers from the failed Signature Bank last year — dropped 17.8% after hours.
New York Community Bancorp
NYCB,
said it had appointed Alessandro DiNello as its new chief executive, a decision that took effect immediately after Thomas Cangemi resigned from the role after 27 years there. Cangemi resigned on Feb. 23.
The leadership change came with some resistance among the company’s board. Hanif Dahya also resigned as presiding director and as a board member, saying in his resignation letter that he “did not support the proposed appointment” of DiNello. Marshall Lux has been named presiding director of the board, effective immediately.
“It is my mandate as president and CEO, alongside our board, to continue our transformation into a larger, more diversified commercial bank,” DiNello said in a statement.
“While we’ve 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’re making to our board and leadership team are reflective of a new chapter that is underway.”
Shares of the bank got slammed last month after it reported a surprise quarterly loss and slashed its dividend. Management, at the time, said it had set aside more money to cushion against “office-sector weakness.” The rise of remote and hybrid work during the pandemic has upended the market for office space and commercial real estate.
Christopher Marinac, research director for Janney Montgomery Scott, said the material-weakness announcement “has to do with stress-testing — not borrowers missing payments.”
“They have been classifying loans for higher interest rates and the borrowers’ financial condition is weaker in the higher-interest-rate environment,” Marinac said during a phone interview with MarketWatch. “I still think it is a solvable problem. It is going to take time.”
Marinac continues to rate NYCB’s shares a buy. “We feel the price-to-tangible book [ratio] is still very attractive. It is a noisy situation day-to-day. We still think the company will make money this year,” he said.
In a filing on Thursday, the company said that as management evaluated the bank’s internal controls, it identified “material weaknesses” in its internal controls related to a loan review. The deficiencies, it said, resulted from “ineffective oversight, risk-assessment and monitoring activities.”
KBW analyst Christopher McGratty said the material-weakness disclosure amounts to an “added layer of uncertainty” for the bank and that his firm remains on the sidelines because of this. He stuck to a market-perform rating for the stock.
“The immediate focus is twofold, in our view: 1) file 10-K, and 2) provide a strategic update once the loan portfolio review is complete,” McGratty said.
Karen Finnerman, chief executive of Metropolitan Capital, told CNBC that a disclosure of material weakness is bad for any company, but it’s particularly concerning for a bank that “had a terrible chapter” recently.
“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 the difficulties in commercial real estate and rent-regulated multi-family properties.
“NYCB’s core historical commercial real-estate lending, significant and unanticipated loss on its New York office and multifamily property could create potential confidence sensitivity,” the firm said.
The bank also said it was unable to file its annual report on time, as it adjusts figures related to the purchase of the former Signature Bank’s assets and other matters. New York Community Bancorp said in the filing that it “does not currently anticipate” that its financial statements in its 2023 annual report would differ significantly from those in an amendment dated Feb. 29.
Steve Gelsi contributed to this story.
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