By Bill Peters and Philip van Doorn
New CEO says company will "continue our transformation into a larger, more diversified commercial bank"
New York Community Bancorp Inc. announced Thursday an immediate shakeup of its leadership, including a new CEO, after the bank took a big hit to its profits last year, said it had "material weaknesses" in its accounting protocols and reveal other financial reporting problems. .
The revelations mark the latest drama for the Long Island, New York-based bank, which has struggled with its exposure to a failing 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, fell 21.7% after hours.
New York Community Bancorp (NYCB) said it had appointed Alessandro DiNello as its new president and CEO effective immediately, after Thomas Cangemi resigned from his positions after 27 years with the company. Former Flagstar CEO DiNello was named executive chairman of NYCB earlier this month, after previously serving as non-executive chairman of its board of directors. Cangemi will remain on the board of directors.
The leadership change came with some resistance among NYCB's board of directors. Hanif Dahya also resigned as president director and as a member of the board of directors, stating in his resignation letter that he "did not support the proposed appointment" of DiNello.
Marshall Lux has been appointed presiding director of the board, effective immediately.
"It is my mandate as president and CEO, along with our board of directors, to continue our transformation into a larger, more diversified commercial bank," DiNello said in a statement.
"While 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 over the long term," he said. "The changes we are making to our board of directors and leadership team reflect a new chapter that is underway."
In a filing Thursday, the company said that after a review, a goodwill impairment charge resulted in a $2.4 billion decline in its annual and fourth-quarter net income.
It also said that when management evaluated the bank's internal financial controls, it identified "material weaknesses" related to a review of the loan. The deficiencies, he said, were the result of "ineffective oversight, risk assessment and monitoring activities."
Additionally, NYCB 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. It noted in the filing that it "does not currently anticipate" its financial statements in its 2023 annual report to differ materially from those in a Feb. 29 amendment.
The rise in remote and hybrid work during the pandemic, along with higher interest rates from the Federal Reserve, have disrupted the market for office space and commercial real estate and complicated refinancing. New York Community Bank is among the largest lenders of multifamily housing, such as multi-unit apartment buildings, both in New York City and nationwide.
The bank's shares took a hit last month after it reported a surprise quarterly loss and cut its dividend. Management at the time said the company had set aside more money to protect against "weakness in the office sector."
However, during a conference call this month, executives pointed to what they said was Flagstar's recovery after the housing crisis and Great Recession of 2007 to 2009. They said trends in deposits had been "resilient" and added that They would "continually" review their loans. briefcase.
"If we have to shrink, then we will," DiNello said then. "If we must sell non-strategic assets, then we will do so. We will do whatever is necessary."
Christopher Marinac, director of research at Janney Montgomery Scott, said Thursday's announcement of material weakness "has to do with stress testing, not borrowers not making payments."
"They have been qualifying loans for higher interest rates, and borrowers' financial situation is weaker in the higher interest rate environment," Marinac said during a phone interview with MarketWatch. "I still think it's a problem that has a solution. It will take time."
Marinac continues to rate NYCB stock a Buy. "We feel that the tangible price-book ratio [ratio] It's still very attractive," he said. "It's a noisy day-to-day situation. "We still think the company will make money this year."
KBW analyst Christopher McGratty said the disclosure of the material weakness amounts to an "additional layer of uncertainty" for the bank, and his firm remains on the sidelines because of it. He stuck to a market perform rating for the stock.
"In our view, the immediate focus is two-fold: 1) file the 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 disclosing 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 many reasons," he said.
Earlier this month, Moody's downgraded the bank's credit rating to junk, citing difficulties in commercial real estate and rent-regulated multifamily properties.
"Significant and unforeseen losses in [NYCB's] "New York offices and multifamily properties could create potential sentiment sensitivity," the firm said.
Steve Gelsi contributed to this story.
-Bill Peters -Philip van Doorn
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02-29-24 2024ET
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