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New York Community Bancorp Inc. “is on its to own” to figure out its accounting and other issues as it gears up to update its financials in the coming weeks.
That’s according to Citigroup analyst Keith Horowitz, after the regional bank disclosed “material weaknesses” in its accounting and other financial-reporting issues — news that sent its stock down 25% early Friday.
“We expect more questions on whether NYCB will sell, but we do not see a lot of potential buyers here even at this price due to the uncertainty,” Horowitz wrote in a note to clients.
While the material weakness “adds more fuel” to the fire around New York Community Bancorp, no additional financial impact is expected beyond the $2.4 goodwill impairment charge that it took for its fourth quarter, Horowitz said.
New York Community Bancorp’s stock fell to $3.46 a share in premarket trading, after the bank said late Thursday it found material weakness related to its loan review in an evaluation of its internal financial controls.
The deficiencies were the result of “ineffective oversight, risk-assessment and monitoring activities,” the bank said.
A spokesperson for the Federal Deposit Loan Corp. declined to comment.
Wall Street analysts were quick to point out that the troubles appear to be isolated around New York Community Bancorp.
JPMorgan analyst Steven Alexopoulos said the bank’s situation is “not representative of pressure/uncertainty on regional banks more broadly.”
Despite these assurances, shares of regional banks fell in early trading on Friday.
Citigroup analyst Horowitz said “significant changes” will be needed for New York Community Bancorp’s credit risk monitoring, “which we expect may lead to them being more proactive on recognizing issues going forward.”
The bank’s disclosure that it does not anticipate a materially different operations disclosure is important, Horowitz said.
“A material weakness does not necessarily always equate to an impact on financials,” Horowitz said. “In our view, the delay in the 10-K is likely meant to give auditors sufficient time to ensure that there was no financial impact from the material weakness in the control environment, which means a lot of time for individual loan testing.”
Wedbush analyst David Chiaverini reiterated an underperform rating — the equivalent of sell — on New York Community Bancorp and cut his price target for the stock to $3.50 from $5.00.
“Our underperform rating is based on NYCB’s high exposure to NYC rent-regulated multifamily loans, which we believe are under stress, and represent 25% of NYCB’s total loans, which is the highest in our
coverage,” Chiaverini said.
JPMorgan analyst Alexopoulos said the bank continues to pose risks and that investors should remain on the sidelines.
“While it doesn’t appear that the incidence of weakness in controls being identified would pose limitations on the company’s business/lending activities or result in a material increase in costs beyond what has been already identified along with 4Q23 results, this new information further elevates the uncertainty surrounding the company,” Alexopoulos said.
New York Community Bancorp said it had appointed Alessandro DiNello as its new president and chief executive effective immediately, after Thomas Cangemi resigned from the roles after 27 years at the company. DiNello, the former chief executive of Flagstar, was appointed as NYCB’s executive chair earlier this month, having previously served as nonexecutive chair of its board. Cangemi will remain on the board.
The latest development marked the latest turn in a roller coaster ride for the bank since it acquired distressed Signature Bank, a former S&P 500 component, in a deal brokered by the FDIC following the collapse of Silicon Valley Bank one year ago.
This past summer, the bank reported a roughly 150% increase in second-quarter profit, which sent its stock higher.
Then, the stock lost a third of its value on Jan. 31 in the largest one-day slide in its history when it reported a surprise-fourth-quarter loss, a dividend cut and costs tied to two loans, one on an office property and the other a multifamily deal.
The stock triggered selling in other regional banks in early February as its share price fell to levels not seen since the 1990s. Insiders then acquired stock at discounted prices — and the stock had been fighting its way back for the past couple of weeks. Among the buyers was billionaire George Soros, who bought about 1 million shares.
New York Community Bancorp boosted its lost-loss reserves by 790% or $490 million in the fourth quarter from the previous quarter, more than any other bank in its class, as it faced potential challenges in its office and multi-family loan portfolio.
While the bank bulked up by buying Signature Bank, it reached a size with higher capital requirements by regulators. This led the bank to set aside more money for its balance sheet.
Also read: New York Community Bancorp’s stock crushed on surprise loss, dividend cut and cost of two loans
Philip Van Doorn and Bill Peters contributed to this report
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