The turmoil surrounding New York Community Bancorp (NYCB) is intensifying again after it disclosed the exit of CEO Thomas Cangemi, weaknesses in its internal controls, and a tenfold increase in its fourth quarter loss to $2.7 billion.
The stock of the Hicksville, N.Y.-based commercial real estate lender plunged 26% Friday, dragging its drop on the year to 65%.
Cangemi's replacement is executive chairman Alessandro DiNello, who had been acting as the bank’s true boss since Feb. 6 after the board changed NYCB's bylaws so that Cangemi reported directly to DiNello.
One NYCB director, Hanif "Wally" Dahya, said in a Feb. 25 letter that he "did not support the proposed appointment" of DiNello as CEO without saying why. Dahya, who had been presiding director, resigned from the board.
The new disclosures made late Thursday are the latest twist in a monthlong saga roiling a lender that played the role of rescuer just a year ago during the 2023 regional banking crisis.
NYCB's stock began falling on Jan. 31 when it surprised analysts by slashing its dividend, setting aside more for loan losses, and reporting a net quarterly loss of $252 million.
Now the $114 billion bank, one of the 30 largest in the US, said in a new filing that the fourth quarter loss was amended to $2.7 billion due to a new $2.4 billion "goodwill" non-cash impairment charge linked to the value of transactions that occurred at least 17 years ago.
It decided to take that charge, which it said does not affect regulatory capital, after an assessment completed on Feb. 23 concluded that “goodwill from historical transactions (2007 and prior) was fully impaired as of December 31, 2023, as confirmed by the company’s current market capitalization," the bank said in a filing Thursday.
The bank said separately that management "identified material weaknesses in the company’s internal controls related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities."
It took the step of delaying the filing of its annual report so that it could "complete its work related to the evaluation and planning for remediation of the material weaknesses."
NYCB tried to calm investors on Friday with another announcement that it had hired a new chief risk officer and chief account executive, filling posts left vacant by recent departures.
DiNello said in that new statement that the company's allowance for credit losses is "not expected to change" as a result of the internal control weaknesses disclosed Thursday and that the company "has strong liquidity and a solid deposit base."
The problems at NYCB that started one month ago raised larger concerns about the regional banking world nearly a year after three sizable mid-sized lenders were seized by regulators following deposit runs.
The stocks of other regional banks fell Friday, as did indexes tracking those lenders.
But JPMorgan analyst Steven Alexopoulos said, "We continue to view the situation at New York Community as being very specific to NYCB and not representative of pressure/uncertainty on regional banks more broadly."
David Chiaverini, Wedbush's managing director of equity research, told Yahoo Finance on Friday that the main risk in NYCB's portfolio is its exposure to rent-regulated apartments, which is 22% of total loans. NYCB is a big lender to landlords of these properties in New York City.
"So it does seem to be idiosyncratic to New York Community Bank, at least on an acute basis," he said. "Now will CRE be a headwind for the overall banking industry? Yes, absolutely, but the rest of the industry will have a runway to set aside reserves as we go."
'Laser-focused'
DiNello is now firmly in charge of NYCB following the departure of Cangemi, who had been with the bank for 27 years. The bank said in a Thursday press release that Cangemi "stepped down" as CEO and will remain on the board.
DiNello was previously the CEO of Troy, Mich.-based Flagstar Bank, which NYCB purchased at the end of 2022. He had been serving as non-executive chair since the acquisition.
The decision to purchase Flagstar and then absorb assets from the failed Signature Bank in 2023 pushed NYCB above $100 billion in assets, a threshold that brought heightened scrutiny from regulators.
NYCB has said those tighter requirements are what led to the decision to slash its dividend and set aside more for future loan losses. It set aside $552 million, well above estimates, to account for weaknesses tied to office properties and multifamily apartments.
DiNello used a Feb. 7 conference call to assure analysts that the bank had the situation under control. He said that "we'll be laser-focused" on reducing the bank's commercial real estate concentration and that NYCB's No. 1 priority is "building confidence" with Wall Street about its deposits and liquidity.
The bank disclosed on Feb. 13 that on Feb. 6, it had changed its bylaws to appoint DiNello as executive chair, with the CEO reporting to him. It also said that any removal of DiNello or failure to reelect him as executive chair over the next 24 months would require the "affirmative vote of at least 75% of the entire board."
The board's composition is in flux. First NYCB director Toan Huynh, who had served as a director of Flagstar since December 2020, notified the board of her decision to resign on Feb. 6.
Another change came on Feb. 25 when Dahya, the presiding director, resigned as well.
The bank said Thursday that Marshall Lux, who has served as an independent director since 2022, was named as the new presiding director.
"While we've faced recent challenges, we are confident in the direction of our bank and our ability to deliver for our customers, employees and shareholders in the long-term," DiNello said in a Thursday press release. "The changes we're making to our board and leadership team are reflective of a new chapter that is underway."
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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