New York bank’s CEO steps down; shares plunge
A New York bank found itself under severe pressure to close on Friday, one year after absorbing a large chunk of another bank 30 miles away that had failed.
Shares of New York Community Bancorp plunged at the opening bell after longtime Chief Executive Officer Thomas Cangemi, who has spent much of this year reassuring investors about the bank’s viability, stepped down abruptly and the bank postponed a mandatory annual financial disclosure to U.S. regulators because of “material weakness” tied to loans.
Commercial banks like New York Community Bancorp have been hammered by falling values in the commercial real estate market after the pandemic upended work in offices for millions of people.
The bank reported a loss of $252 million for the fourth quarter, including a provision for credit losses of $552 million, much of it tied to real estate. Its credit rating was downgraded to “junk” by Moody’s.
That pressure has been compounded at the Hicksville, N.Y., bank because it expanded significantly, almost overnight, after absorbing the failed Signature Bank.
That put New York Community Bancorp at a new level that requires higher regulatory scrutiny, a transition that has been rocky.
The filing late Thursday with the U.S. Securities and Exchange Commission included a $2.4 billion goodwill impairment charge, meaning that the bank is reassessing the value of its assets.
Those losses will be booked retroactively in the bank’s fourth quarter, meaning its surprise loss was just multiplied by 10 times.
“As part of management’s assessment of the company’s internal controls, management identified material weaknesses in the company’s internal controls related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities,” the bank said in the filing.
Bank shares tumbled 23% in early trading and dragged on other regional banks as well. Its share are now down 65% for the year.
At this time last year, federal banking officials tamped down growing anxiety over contagion in the banking sector and President Joe Biden called for tougher regulations after two banks failed in one weekend in mid-March.
One of those failed banks, Signature, was acquired by New York Community Bancorp, pushing it above $100 billion in assets, which by law puts it under more scrutiny from regulators.
Industry analysts were not voicing concerns over any sort of contagion in the banking sector Friday given the unique circumstances that have led up to recent issues at New York Community Bancorp, its exposure to commercial real estate and the tremendous leap in its market capitalization.
“The disclosure of a material weakness in its loan review process is important, and significant changes will need to be made with respect to how they monitor credit risk going forward which we expect may lead to them being more proactive on recognizing issues going forward,” Citi’s Keith Horowitz said in a client note.
Horowitz said that the delay in the bank’s annual report “is likely meant to give auditors sufficient time to ensure that there was no financial impact from the material weakness in the control environment, which means a lot of time for individual loan testing.”
Cangemi, who has been with the bank for 27 years, will be replaced as CEO by Alessandro DiNello, executive chairman on the bank’s board.
DiNello was CEO of Flagstar Bank, which New York Community Bancorp acquired in late 2022.