By Hannah Levitt and Sally Bakewell
Commercial real estate lender New York Community Bancorp said it discovered “material weaknesses” in how it tracks loan risks, wrote down the value of companies acquired years ago and replaced its leadership to grapple with the turmoil. The stock plunged.
Alessandro DiNello will become chief executive officer effective immediately, succeeding Thomas Cangemi, the lender said in a statement late Thursday. The company expects to miss a deadline for filing an annual report as it shores up controls.
The weaknesses “related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities,” the firm said in a regulatory filing. It separately took a $2.4 billion goodwill impairment tied to past transactions, which won’t affect its regulatory capital.
The stock tumbled 20% at 10:24 a.m. in New York, extending this year’s slump to 63%.
The announcement reignites a drama that erupted at the end of January when the company — a major lender to New York apartment landlords — said it’s stockpiling cash to cover potential problems with loans. Investors in regional banks have been on edge ever since, focused on whether multifamily residential complexes can generate enough revenue to maintain financing after New York toughened rent controls in 2019.
While vacant office towers are also a concern for bank shareholders, NYCB’s largest real estate exposure comes from about $37 billion in apartment loans — with almost half backed by rent-regulated complexes.
Among the fresh disclosures, the weakness in controls is “most worrisome,” Piper Sandler analyst Mark Fitzgibbon wrote in a note to clients, cutting his recommendation for the stock to neutral from overweight.
“Without a doubt, the situation feels a bit uncertain at NYCB right now,” he said. “We fear that there could be additional issues that get raised as a new team takes the reins.”
One risk is that credit costs could be higher for longer as internal oversight is fixed, Raymond James analyst Steve Moss said.
The company said it doesn’t expect the material weaknesses to result in changes to its allowance for credit losses, according to a separate statement Friday. The bank also on Friday named George F. Buchanan chief risk officer and Colleen McCullum chief audit executive. Those executives’ predecessors left their posts in the months before the bank slashed its dividend and stockpiled cash against future loan losses in late January.
Separately, NYCB said Thursday that it retroactively booked a $2.4 billion goodwill impairment in the fourth quarter tied to the value of transactions before the 2008 financial crisis. The hit has “no impact” on the firm’s regulatory capital ratios, nor does it affect compliance with outstanding credit agreements, NYCB said. The impairment charge also didn’t result “in any current cash expenditures.”
DiNello was appointed executive chairman earlier in February to help the bank improve operations. The former head of Flagstar Bancorp joined NYCB when it acquired that firm in December 2022.
DiNello’s rising clout was already on display when the firm held a conference call to address its troubles weeks ago. He fielded most of the questions from analysts, effectively sidelining Cangemi.
“It is my mandate as president and CEO, alongside our board, to continue our transformation into a larger, more diversified commercial bank,” DiNello said in the statement. “While we’ve faced recent challenges, we are confident in the direction of our bank.”
Cangemi will remain on NYCB’s board. Marshall Lux, who has served as an NYCB independent director since 2022, was named presiding director, effective immediately, succeeding Hanif Dahya in that role. In a resignation letter, Dahya said he didn’t support DiNello’s appointment to CEO.
— With assistance from Bre Bradham