NYCB shares plunge as loan review disclosure adds to CRE exposure woes

[March 01, 2024]  By Niket Nishant

(Reuters) -New York Community Bancorp shares fell 30% before the bell on Friday after it found "material weaknesses" in internal controls related to its loan review, adding worries to investors already fretting over its commercial real estate (CRE)exposure.

The weaknesses were related to "ineffective oversight, risk assessment and monitoring activities", the bank said, adding it will detail the remediation plan when it files its annual report with the U.S. Securities and Exchange Commission in 15 days.

The lender has been under pressure since it posted a surprise fourth-quarter loss on Jan. 31 due to higher provisions tied to CRE loans and cut its dividend to deal with tough regulation.

NYCB late on Thursday revised its quarterly loss to 10 times higher than what it had stated, citing a $2.4 billion goodwill impairment tied to transactions from 2007 and before.

"NYCB looks like a bank that is out of control and it seems likely that they will have to take even steeper charges for loan loss provisions," said Octavio Marenzi, CEO of advisory and consulting firm Opimas LLC.

The lender's market value was set to shed $1 billion, if the current share losses hold through the session. It has already lost more than $4 billion since its earnings report.

Citigroup analyst Keith Horowitz said the impairment should not be seen as a big surprise, but material weakness is a bigger issue.

"Significant changes will need to be made with respect to how they monitor credit risk, which we expect may lead to them being more proactive on recognizing issues," he said.

EXECUTIVE CHANGES

After the share slide due to its CRE exposure, the lender had last month named banking veteran Alessandro DiNello as executive chairman.

A screen displays the trading information for New York Community Bancorp on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 31, 2024. REUTERS/Brendan McDermid/File Photo

The former CEO of Flagstar Bank, which was acquired by NYCB in 2022, was on Thursday assigned the additional roles of president and CEO.

"The appointment will be viewed favorably given DiNello's prior history of turning around Flagstar," Raymond James analyst Steve Moss said.

The bank also named its independent director Marshall Lux as presiding director of the board, succeeding Hanif Dahya.

"At the time of my resignation I did not support the proposed appointment of Mr. DiNello as President and CEO of the Company," Dahya said in a statement.

REGIONAL BANKS' HEALTH

The KBW Regional Banking index has lost nearly 9% since NYCB's report on Jan. 31 and will be under the spotlight on Friday after the latest disclosure by the bank.

Meanwhile, shares of B Riley Financial fell 14% in premarket trading after the investment bank and brokerage late on Thursday cut its quarterly dividend by half.

Its Chairman and co-CEO Bryant Riley said the move was to focus on investment opportunities, including potentially repurchasing own debt at attractive prices.

The bank is also reviewing strategic options for its appraisal and valuation services and retail, wholesale and industrial solutions businesses, it said.

(Reporting by Niket Nishant in Bengaluru; Editing by Arun Koyyur)

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