New York Community Bancorp, a prominent bank in New York, is facing immense pressure and a CEO resignation following a failed bank acquisition. The bank’s shares plummeted after CEO Thomas Cangemi abruptly stepped down, and the bank postponed its annual financial disclosure due to “material weakness” associated with loans. This setback comes as commercial banks, including New York Community Bancorp, have been severely impacted by the declining value of commercial real estate caused by the COVID-19 pandemic.
The bank reported an unexpected loss of $252 million in the fourth quarter, with a provision for credit losses of $552 million, primarily linked to real estate. Moody’s downgraded its credit rating to “junk,” further exacerbating the pressure on the bank. Adding to its challenges, New York Community Bancorp experienced rapid growth after acquiring the failed Signature Bank, placing it under heightened regulatory scrutiny.
In a recent filing with the U.S. Securities and Exchange Commission, the bank disclosed a $2.4 billion goodwill impairment charge, indicating a reassessment of asset values. These losses will be retroactively recorded in the fourth quarter, amplifying the surprise loss tenfold. The filing also revealed material weaknesses in the bank’s internal controls related to loan review, attributed to ineffective oversight, risk assessment, and monitoring activities.
As news of these developments spread, bank shares plummeted by 23% in early trading, affecting other regional banks as well. Year-to-date, New York Community Bancorp’s shares have declined by 65%. However, industry analysts do not anticipate contagion in the banking sector due to the unique circumstances surrounding the bank’s recent issues, its exposure to commercial real estate, and the significant increase in its market capitalization.
Citi analyst Keith Horowitz emphasized the importance of addressing the material weakness in the loan review process and implementing proactive measures to monitor credit risk moving forward. He suggested that the delay in the bank’s annual report is to allow auditors sufficient time to ensure that the material weakness does not have a financial impact, requiring extensive individual loan testing.
In response to the CEO’s resignation, Alessandro DiNello, the executive chairman of the bank’s board, will assume the role of CEO. DiNello previously served as the CEO of Flagstar Bank, which New York Community Bancorp acquired in late 2022.
While New York Community Bancorp faces significant challenges and uncertainties, its leadership change and commitment to addressing internal control weaknesses provide hope for a path to recovery. The bank will need to navigate the complexities of the commercial real estate market and regain investor confidence to regain stability and thrive in the future.