New York Community Bancorp, a regional bank based in Hicksville, New York, is facing a shareholder lawsuit following the revelation of unexpected commercial real estate loan losses and a significant dividend cut. These developments have caused the bank’s stock price to plummet to its lowest point in nearly 27 years. Shareholders have accused the 145-year-old bank of defrauding them by failing to disclose the need for additional funds to cover credit losses and the decision to reduce the dividend by 71% in order to strengthen the bank’s balance sheet.
Led by Walter Lemm, a resident of Tennessee, the shareholders claim that New York Community Bancorp artificially inflated its stock price since March of last year by providing an “unrealistically positive assessment of the Company and its financial well-being and prospects.” The bank’s Chief Executive, Thomas Cangemi, and Chief Financial Officer, John Pinto, are also named as defendants in the lawsuit. As of now, New York Community Bancorp has not responded to requests for comment.
The bank’s unexpected fourth-quarter loss of $260 million, announced last Wednesday, was primarily attributed to loan losses associated with offices and apartment buildings. In addition, the decision to cut dividends was made to ensure sufficient capital to meet regulatory requirements. New York Community Bancorp operates approximately 420 branches under various names, including its original name, Queens County Savings Bank. The bank’s acquisition of Signature Bank and Flagstar Bank in 2022 further increased its overall assets to over $116 billion.
The recent troubles faced by New York Community Bancorp have raised concerns about other midsize lenders that are exposed to commercial real estate. The COVID-19 pandemic has led to low occupancy rates for landlords, while elevated interest rates have made loan refinancing more expensive. Silicon Valley Bank and First Republic, two other midsize regional banks, also experienced failures early last year.
As a result of these developments, New York Community Bancorp’s shares closed down 22.2% at $4.20 on Tuesday, reaching a level not seen since April 1997. The stock price has fallen by 60% in the past week alone. It is not uncommon for companies to face shareholder lawsuits following unexpected news that negatively impacts stock prices.
In conclusion, New York Community Bancorp finds itself in a challenging situation as it confronts shareholder litigation after reporting significant real estate loan losses and a dividend cut. The bank’s stock price has suffered a sharp decline, raising concerns about the stability of other midsize lenders exposed to commercial real estate. The outcome of the lawsuit and the bank’s ability to recover from these setbacks will be closely watched by investors and industry observers alike.