On Thursday, NY Community Bancorp (NYCB.N) dismissed its CEO, declared a fourth-quarter loss 10 times larger than expected, and uncovered financial reporting irregularities, sending its shares plummeting.
President and CEO Alessandro DiNello was executive chairman of the board. He succeeded Thomas Cangemi, who resigned on Feb. 23 but will remain on the board, according to a regulatory filing. Director Marshall Lux presided. Extended trade saw NYCB drop 21% to $3.82. The bank revised fourth-quarter loss to $2.7 billion.
The institution's surprise net loss on Jan. 31 caused a broad selloff in regional bank shares and renewed industry fears nearly a year after three regional lenders failed.
"Management uncovered significant internal control issues.It was "related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities," said.
Due to "not effective" financial reporting internal controls when its books were closed in 2023, the lender's annual report would be delayed. "These developments are entirely surprising and disappointing," said Global Value Investment COO and fund manager JP Geygan. "We expect the stock to decline, and our concern now is to understand the issues that led to this and the action the management would be taking to prevent it," Geygan added.
NYCB bought collapsed Signature Bank assets last year. After acquiring Flagstar Bank in 2022, the lender's balance sheet hit $100 billion with stricter capital and liquidity requirements.
"The scope and magnitude of the recent leadership changes underscore the challenges facing NYCB as it works through considerable regulatory, credit and overall earnings uncertainty in its new status as an over $100 billion bank," said David Smith of Autonomous Research.
Shares plummeted to a nearly 27-year low on Feb. 6 after shareholders sued the bank. Investors claimed in the proposed class action that the regional bank misled them by failing to disclose it would set aside more money for credit losses and cut its dividend 71% to strengthen its balance sheet.
The management changes were expected, but "the material weakness is a tough headline," said KBW analyst Chris McGratty. After reviewing its loan portfolio, market players will focus on the company's delayed financial disclosures and strategic update.
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