A New York bank is under intense pressure for nearly a year Friday after it took over a large portion of another bank 30 miles away that had failed.
New York Community Bancorp shares plunged at the opening bell after longtime CEO Thomas Cangemi, who spent much of this year reassuring investors of the bank's profitability, abruptly resigned and the bank made a mandatory annual financial disclosure to the U.S -Regulators for “material reasons” postponed “weakness” related to loans.
Commercial banks like New York Community Bancorp have been hit by falling values in the commercial real estate market after the pandemic halted office work for millions of people.
The bank reported a surprise fourth-quarter loss of $252 million, including a $552 million provision for loan losses, much of which was related to real estate. The company's credit rating was downgraded to junk by Moody's.
Those pressures have intensified at the Hicksville, New York, bank as it grew massively almost overnight following its acquisition of the failed Signature Bank.
With this, New York Community Bancorp has reached a new level that requires tighter regulatory control, 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 the bank is reassessing the value of its assets.
These losses are retroactively recorded in the bank's fourth quarter, meaning the surprise loss only multiplied tenfold.
“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 credit review that resulted from ineffective oversight, risk assessment and monitoring activities,” it said Bank submission.
Bank stocks fell 23% in early trading, weighing on other regional banks. Its share has now fallen by 65% over the year.
This time last year, federal banking officials were curbing growing fears of contagion in the banking sector and President Joe Biden was calling for tougher regulations after two banks failed over a weekend in mid-March.
The story goes on
One of those failed banks, Signature, was acquired by New York Community Bancorp, growing its assets to more than $100 billion, subjecting it to greater scrutiny from regulators under the law.
Industry analysts on Friday expressed no concerns about any kind of contagion in the banking sector, given the unique circumstances that led to the recent problems at New York Community Bancorp, its exposure to commercial real estate and the huge jump in its market capitalization.
“Disclosing a material vulnerability in the credit review process is important and significant changes need to be made to how credit risk is monitored going forward, which we expect may result in the company being more proactive in identifying issues in the future,” Citi’s Keith Horowitz said in a customer message.
Horowitz said the delay in the bank's annual report “is likely intended to give auditors sufficient time to ensure that the material weakness in the control environment does not have a financial impact, which means significant time to review individual loans.”
Cangemi, who has been with the bank for 27 years, will be replaced as CEO by Alessandro DiNello, the bank's chairman.
DiNello was CEO of Flagstar Bank, which acquired New York Community Bancorp in late 2022.