NYCB Stocks Rise After New Chairman Appointment Following Credit Rating Downgrade

NYCB Stocks Rise After New Chairman Appointment Following Credit Rating Downgrade

Shares of New York Community Bank (NYCB) saw a boost early Wednesday when the bank promoted its chairman to help steady the company’s operations.

NYCB’s shares increased by 9%, reversing an earlier 10% loss after Moody’s Investors Service downgraded the bank, in premarket trading. This followed a harsh series of trading sessions that wiped out nearly 60% of the company’s market value.

The bank immediately appointed Alessandro DiNello as executive chairman, promoting him from nonexecutive chairman, to work with CEO Thomas Cangemi “to enhance all aspects of the Bank’s operations,” according to a statement released at 7:45 am.

The regional bank has been on a downward spiral since it reported an unexpected loss in the fourth quarter last week, along with growing losses on commercial real estate and the need to cut its dividend by 71% to strengthen capital levels. These moves reignited worries that some small and medium-sized banks could be hurt by drops in profitability and losses on real estate holdings.

NYCB’s announcement addresses management concerns that arose after last week’s earnings report. The lender, based in Hicksville, New York, soared over $100 billion in assets after two acquisitions — Flagstar Bank in late 2022 and the assets of Signature Bank in March 2023 — but then seemed to be taken by surprise by increased regulatory demands after crossing that threshold.

DiNello, who had been CEO of Flagstar Bank since 2013, joined NYCB after the acquisition was finalized.

Late Tuesday evening, Moody’s issued a report stating that NYCB faced “various financial, risk-management, and governance challenges.” It downgraded all the bank’s long-term ratings to Ba2 from Baa3, partly due to concerns about turnover of the firm’s risk management leaders, and warned the assessments remain on review for further downgrade.

“The downgrade reflects Moody’s views that NYCB faces high governance risks from its transition with regards to the leadership of its second and third lines of defense, the risk and audit functions of the bank, at a crucial time,” Moody’s wrote. “In Moody’s view, control functions with strong knowledge of a bank’s risks are key to a bank’s credit strength.”

Overnight, NYCB issued a statement hours after the Moody’s report, stating that the downgrade isn’t expected to have a “significant impact on our contractual arrangements.”

The bank tried to boost confidence by releasing unaudited financial information as of Monday, stating that 72% of total deposits were either insured or collateralized and that it had sufficient liquidity to cover uninsured deposits.

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“We took decisive actions to strengthen our balance sheet and improve our risk management processes during the fourth quarter,” Cangemi said in the release. “Our actions are an investment in enhancing a risk management framework that matches the size and complexity of our bank.”

NYCB has started looking for a new chief risk officer and chief audit executive “with large bank experience,” Cangemi added. Managers holding those roles left the bank in the months before its disastrous earnings report last week, Bloomberg reported.

A man walks past a closed branch of the New York Community Bank in New York City, U.S., January 31, 2024. Image Credit: Mike Segar | Reuters

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