Amidst last spring’s banking crisis, New York Community Bank (NYSE: NYCB) seized an opportunity when a rival lender, Signature Bank, collapsed, acquiring a significant portion of its business. However, the consequences of that decision are now proving costly for the bank.
Following the disclosure of “material weakness in internal controls,” New York Community Bank shares plummeted by over -20%. The identified weakness is purportedly associated with loan review processes, stemming from inadequate oversight and risk assessment measures.
Following the abysmal performance in the previous month and stock plunging by -20% in a short period, Alessandro DiNello has been appointed as the President and CEO, succeeding Thomas Cangemi, who has served the company for nearly three decades.
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NYCB bit off more than it could chew
The primary source of distress originates from a weakening commercial real estate market, compelling NYCB—operating over 400 branches, including Flagstar Bank—to acknowledge escalating losses.
Parallel to last year’s crisis, the bank revealed that its expanded size following the acquisition of Signature Bank had exacerbated its challenges. This expansion necessitated holding more reserves, constraining profitability and prompting consideration of selling distressed assets sooner than preferred.
At the beginning of February, concerns over whether the bank could withstand such pressures surfaced, resulting in a significant decline in NYCB’s stock value. Investors reacted strongly to a disappointing earnings report, leading to a nearly two-thirds reduction in the bank’s stock value as selling intensified.
NYCB will take on a $2.4 billion charge
In a series of filings on February 29, the bank decided to take a $2.4 billion goodwill impairment charge. The $2.4 billion charge assigned to the fourth quarter of 2023 represents a substantial increase, ten times greater than the $252 million surprise loss that prompted significant changes within the bank.
This earlier loss, linked to NYCB’s commercial real estate lending, led to a sharp decline in the bank’s stock and revived concerns about a potential crisis of confidence affecting regional lenders.
Additionally, if the premarket losses persist throughout the session, NYCB’s market value could decline by approximately $1 billion, opening a new dimension of problems.
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