AP – A New York bank is under severe pressure close to one year after absorbing a large chunk of another bank 50 kilometres away that had failed.
Shares of New York Community Bancorp plunged after long-time CEO Thomas Cangemi, who has spent much of this year reassuring investors about the bank’s viability, stepped down abruptly and the bank postponed a mandatory annual financial disclosure to United States (US) regulators due to “material weakness” tied to loans.
Commercial banks like New York Community Bancorp have been hammered by falling values in the commercial real estate market after the pandemic upended work in offices for millions.
The bank reported a surprise loss of USD252 million for the fourth quarter, including a provision for credit losses of USD552 million, much of it tied to real estate. Its credit rating was downgraded to “junk” by Moody’s.
That pressure has been compounded at the Hicksville, New York, bank because it grew massively almost overnight after absorbing the failed Signature Bank. That put New York Community Bancorp at a new level that requires higher regulatory scrutiny, a transition that has been rocky.
The filing on Thursday with the US Securities and Exchange Commission included a USD2.4 billion goodwill impairment charge, meaning that the bank is reassessing the value of its assets. Those losses will be booked retroactively in the bank’s fourth quarter, meaning its surprise loss was just multiplied by 10 times.
“As part of management’s assessment of the company’s internal controls, management identified material weaknesses in the company’s internal controls related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities,” the bank said in the filing.
Bank shares tumbled 26 per cent on Friday and dragged on other regional banks as well. Its share is now down 65 per cent for the year.
At this time last year, federal banking officials tamped down growing anxiety over contagion in the banking sector and President Joe Biden called for tougher regulations after two banks that failed in one weekend in mid-March.
One of those failed banks, Signature, was acquired by New York Community Bancorp, pushing it above USD100 billion in assets, which by law puts it under more scrutiny from regulators.
Industry analysts were not voicing concerns over any sort of contagion in the banking sector on Friday given the unique circumstances that have led up to recent issues at New York Community Bancorp, its exposure to commercial real estate and the tremendous leap in its market capitalisation.
“The disclosure of a material weakness in its loan review process is important, and significant changes will need to be made with respect to how they monitor credit risk going forward which we expect may lead to them being more proactive on recognising issues going forward,” Citi’s Keith Horowitz said in a client note.
Horowitz said that the delay in the bank’s annual report “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.”
