New York Community Bancorp's latest leadership revamp did little to quell investors' worries about the Long Island-based bank, as its stock price fell nearly 26% after a flurry of announcements that started late Thursday.
The company said early Friday that it has filled gaps in its executive ranks by hiring a new chief risk officer and a head auditor. The appointments are part of the bank's efforts
The hirings of George Buchanan as chief risk officer and Colleen McCullum as chief audit executive fill two vacancies that had been a
On Friday, Fitch Ratings cut its rating of New York Community to BB+, moving it into "junk" or speculative territory.
Fitch analysts wrote in a note that the new hires are "constructive steps in building an executive team with depth of experience more in line" with a bank its size. But they stated that the material weaknesses prompted a "re-assessment of NYCB's risk profile." And they warned that the bank may see its profitability hampered if it further ramps up its reserves, which guard against losses in its real estate-heavy loan portfolio.
Moody's Investors Service also cut the bank's rating to B3, deeper into junk territory. In a note on Friday night, the ratings firm said the bank's overhaul is coming during a "particularly challenging" environment and flagged "ongoing risks to its creditworthiness" as the bank's changes take full effect.
Piper Sandler analyst Mark Fitzgibbon, who downgraded the bank's stock rating late Thursday from "overweight" to "neutral," said the leadership changes and delayed annual report imply that New York Community may not be past its woes.
Investors are "sniffing around trying to find bargains" in the banking sector and wondering whether the hard-hit New York Community is a good candidate, Fitzgibbon said.
The bank's stock price is now hovering at levels last seen during the Clinton administration. But Fitzgibbon said its problems are "very opaque," making it hard for investors to predict whether there's more pain to come.
"Everybody thought they had ripped the Band-Aid off three or four weeks ago," Fitzgibbon said in an interview. "Now it appears that's not the case, and that there's more to come."
The bank's disclosures late Thursday also raised new questions about New York Community's auditor, KPMG. The accounting giant, which is the leading auditor of U.S. banks,
In an annual filing last year, New York Community said that KPMG had audited the effectiveness of its internal controls as of year-end 2022. The next year was a busy one for New York Community, as it folded in Flagstar Bancorp's operations and also acquired much of Signature's remains.
On Thursday, New York Community blamed the "material weaknesses" in its internal controls on "ineffective oversight, risk assessment and monitoring activities." It said that the weakness related to how the bank reviews loans internally.
The bank also said that it has discussed the issues it disclosed Thursday with KPMG and that a full review of its internal controls is ongoing.
New York Community said that it expects to announce in its annual report that "its disclosure controls and procedures and internal control over financial reporting were not effective" at the end of 2023. It also said it would lay out a "remediation plan" to fix the weaknesses.
"There are a lot of questions that the auditors are going to have to answer," said Dennis Kelleher, the co-founder and CEO of the advocacy group Better Markets.
A KPMG spokesperson declined to comment. New York Community did not respond to a request for comment on the issue.
The latest news from New York Community "will once again test customer loyalty and deposit stickiness given this new round of stock price pressure," analysts at the ratings firm Morningstar DBRS wrote in a research note.
Shares in the bank fell 25.9% after Thursday's disclosures and ended Friday at $3.52 per share, down sharply from roughly $10 per share at the start of the year.
"Unfortunately, these additional news items place further scrutiny on the company at a time when it needs to restore confidence," the Morningstar DBRS analysts wrote.
A little over four weeks ago, New York Community announced a fourth-quarter earnings loss and
A week later, Alessandro "Sandro" DiNello, the former Flagstar CEO who had been New York Community's non-executive chairman,
Buchanan, the new chief risk officer, previously led credit review and risk management at Regions Bank. McCullum, who was named chief audit executive, arrives from United Community Bank. Earlier in her career, she headed audit and risk teams at Capital One Financial, Wells Fargo and Bank of America.
Those additions were part of an 18-hour stretch of musical chairs in the bank's executive ranks and on its board.
While Cangemi is remaining on the company's board, New York Community also announced Thursday that board director Hanif "Wally" Dahya has left his position. Dahya wrote in his resignation letter that he "did not support the proposed appointment of Mr. DiNello as president and CEO of the company."
Dahya's departure came less than a month after the resignation of another director, Toan Huynh, who walked away on the same day that DiNello was named executive chairman.
Also on Thursday, Marshall Lux, who joined the board two years ago, was named "presiding director" of the board and chair of its nominating and corporate governance committee.
On Friday, DiNello touted the progress he's made since taking a more hands-on role.
"Over the last three weeks since being appointed as executive chairman, the company has taken swift action to improve all aspects of our operations," DiNello said Friday in a prepared statement. "The leadership team identified the material weaknesses disclosed yesterday and has been taking the necessary steps to address them, including appointing new executives."
The $116.3 billion-asset company's new leaders will have to steady an outsized commercial real estate portfolio, fix the newly disclosed weaknesses in the company's controls and contend with its lowest stock price since 1997.
Wedbush analyst David Chiaverini, who downgraded New York Community twice back in November, landing at "underperform," wrote in a Friday note that the bank's internal review could lead to additional loan loss reserves. Such reserve building would be aimed at protecting against losses in the bank's massive real estate portfolio, especially rent-regulated properties that have come under pressure due to high interest rates and new limitations on rent increases, Chiaverini said.
DiNello said in his statement Friday that the bank's existing allowance for credit losses accounts for the weaknesses, and isn't expected to change. The Morningstar analysts wrote that they didn't view the company's latest announcements as indicative of new issues.
During Cangemi's tenure as CEO, New York Community made two acquisitions in quick succession that vaulted the bank to more than $100 billion of assets, which brought a higher level of regulatory scrutiny. The company bought Flagstar in late 2022 and acquired parts of Signature after the crypto-friendly institution failed last year.
The rapidly changed leadership team signals "red flags of deep, deep deficiencies," said Kelleher of Better Markets. Better Markets has
The bank's new leadership team is inheriting a challenging situation, Kelleher said.
"Hopefully, this new management and board will be able to stabilize the bank, but no matter how good they are, they still have to deal with an incredibly burdened balance sheet," he said. "All the internal controls, the loan book, the CRE problems and on and on are still there."
