NYCB shares fall 26% after disclosure of ‘material weakness’ rattles investors By Reuters
© Reuters. File photo: A screen displaying trading information for New York Community Bancorp on the first floor of the New York Stock Exchange (NYSE) in New York City, USA, January 31, 2024. REUTERS/Brendan McDermid/File Photo
Written by Niket Nishant, Nupur Anand
(Reuters) – New York Community Bancorp (NASDAQ:) saw its stock plunge nearly 26% on Friday after replacing its CEO, reporting a fourth-quarter loss more than 10 times what it previously said and finding “material weaknesses” in the company. He said he did. Internal controls related to loan review.
The news shocked already anxious investors, with NYCB shares falling 65% this year.
“NYCB looks like a bank out of control and likely to have to take on much higher costs for loan loss provisions,” said Octavio Marenzi, CEO of advisory and consulting firm Opimas LLC.
The bank’s stock price closed at $3.55, down 25.9%.
NYCB has been under pressure since it cut its dividend and posted a surprise fourth-quarter loss on Jan. 31, citing increased provisions related to commercial real estate loans.
Late Thursday, the lender revised its quarterly loss to $2.7 billion, citing a $2.4 billion goodwill impairment related to 2007 and earlier transactions.
The lender’s market value fell by about $900 million on Friday, bringing its total market capitalization loss since Jan. 31 to nearly $5 billion.
NYCB said the weaknesses it disclosed Thursday relate to “ineffective oversight, risk assessment and monitoring activities” but will not impact its fiscal 2023 financial results.
Citigroup analyst Keith Horowitz said the impairment shouldn’t come as a big surprise, but material weaknesses were the bigger problem.
“Significant changes need to be made in relation to how we monitor credit risk, which we hope will enable us to be more proactive in recognizing the problem,” he said.
NYCB said it will detail its improvement plans when it files its annual report with the Securities and Exchange Commission within 15 days.
NYCB has a lower concentration of uninsured deposits than its peers and said last month that it had sufficient liquidity to offer extended deposit insurance to customers.
“The company has strong liquidity and a solid deposit base, and we are confident that it will execute its turnaround plan to increase shareholder value,” said new CEO Alessandro DiNello.
But Brian Mulberry, client portfolio manager at Zacks Investment Management, said he’s “very cautious” about the stock.
“Transparency is declining and a change in management could lead to a loss of trust among depositors,” he said.
Fitch Ratings downgraded NYCB and its subsidiary Flagstar Bank to ‘BB+’ https://www.investing.com/”B’ from ‘BBB-“https://www.investing.com/”F3’ on Friday evening. .
Several other firms, including Moody’s (NYSE:) and Morningstar DBRS, also downgraded the bank after the earnings.
Moody’s downgraded NYCB’s credit rating from ‘Ba2’ to ‘B3’ on Friday evening. The rating agency downgraded the long-term deposits of NYCB’s main bank, Flagstar Bank, from ‘Baa2’ to ‘Ba3’.
change of officers
Chris Marinac, director of research at financial adviser Janney Montgomery Scott, said the bank had made numerous board and management changes to boost investor confidence.
NYCB on Friday appointed financial services veteran George Buchanan as chief risk officer and Collen McCullum as chief audit officer. DiNello, who was named chairman last month, assumed the additional role of president and CEO on Thursday.
DiNello is the former CEO of Flagstar Bank, which was acquired by NYCB in 2022.
“Given DiNello’s previous track record of turning Flagstar around, this appointment will be viewed favorably,” said Raymond James analyst Steve Moss.
Under DiNello’s leadership, Flagstar implemented changes to lift a consent decree imposed by regulators in 2016.
However, NYCB’s balance sheet exceeded the $100 billion regulatory threshold due to the Flagstar acquisition and some failed asset purchases. signature bank (OTC:) As size increases, more stringent capital and liquidity standards apply.
Short sellers targeting the company’s stock had already made paper profits of about $150 million by Thursday before Friday’s plunge, according to data and analytics firm Ortex.
The decline in NYCB’s stock had traders in the options market looking for defensive positions with renewed enthusiasm on Friday.
Other U.S. regional banks saw their shares fall as concerns about the health of local lenders reignited. Since NYCB’s quarterly report on Jan. 31, the KBW Regional Banks Index has fallen nearly 10% and was down another 1.27% on Friday.
But analysts at JP Morgan said the NYCB situation is unique.
“We continue to view the situation at NYCB as very specific and not representative of the pressures and uncertainty on regional banks,” said JP Morgan analyst Steven Alexopoulos.
