NYCB shakes up leadership amid $2.4B earnings hit, weak controls

Thomas Cangemi is stepping down as president and CEO of New York Community Bancorp (NYCB) following the company’s disclosure of internal control deficiencies and a goodwill impairment of $2.4 billion. 

Alessandro DiNello, appointed executive chairman of the board on Feb. 6, will replace Cangemi, effective immediately. DiNello was the president and CEO of Flagstar Bancorp, a bank recently acquired by NYCB. The company announced on Thursday that Cangemi, who has been with the company for 27 years, will remain on the board. 

Long Island-based NYCB, which concluded the acquisition of Flagstar Bank in December 2022 and rescued Signature Bank in March 2023, has faced a confidence crisis due to its exposure to commercial real estate loans. The stress is leading the bank to seek to sell some of its assets and transfer some mortgage risks to improve its capital position. 

Flagstar originated $15.7 billion in mortgages in 2023, according to Inside Mortgage Finance (IMF) estimates. At year’s end, it also had $84.3 billion in owned servicing rights. When including the portfolio of other companies, IMF data shows Flagstar serviced $379 billion in mortgages. 

“While we’ve faced recent challenges, we are confident in the direction of our bank and our ability to deliver for our customers, employees, and shareholders in the long term,” DiNello said in a statement. “The changes we’re making to our board and leadership team are reflective of a new chapter that is underway.”

Marshall Lux, who has served as an independent director since 2022, was appointed presiding director of the board, replacing Hanif “Wally” Dahya, who is also stepping down. Lux, a former senior partner at Boston Consulting Group and chief risk officer for Chase Consumer Bank at JPMorgan, will also become chair of the board’s nominating and corporate governance committee.  

Changes in the leadership come after NYCB informed on Feb. 23 the Securities and Exchange Commission (SEC) that it had completed a goodwill impairment for the fourth quarter of 2023, resulting in a $2.4 billion decrease in the annual net income available to stockholders. 

However, the company said the goodwill impairment did not impact regulatory capital ratios or compliance with covenants and did not result in cash expenditures.

The company also stated that the management identified “material weaknesses” in “internal controls related to internal loan review.” It resulted from “ineffective oversight, risk assessment and monitoring activities,” but the company is working on a plan to address the issues. 

Credit rating agency Moody’s raised concerns with the company’s governance when it downgraded NYCB to ‘junk status’ in early February. Moody’s mentioned a leadership transition “of second and third lines of defense, the risk and audit functions of the bank, at a pivotal time.”

To address these issues, NYCB announced on Friday the appointment of George Buchanan III as executive vice president and chief risk officer and Colleen McCullum as executive vice president and chief audit executive.

“Over the last three weeks since being appointed as executive chairman, the company has taken swift action to improve all aspects of our operations,” DiNello said in a statement. “The leadership team identified the material weaknesses disclosed yesterday and has been taking the necessary steps to address them, including appointing new executives. Our allowance for credit losses considered these weaknesses and is not expected to change.” 

Questions regarding NYCB financials began at the end of January when it reported earnings for fourth-quarter 2023. The data included a $193 million net loss available to common stockholders during the three months and a provision for loan losses of $552 million, up from $62 million in the previous quarter.  

Measured by its common equity tier 1 (CET1) ratio, the bank’s capitalization fell to 9.1% as of Dec. 31, 2023, down from 9.59% in the third quarter. Targeting a 10% CET1 ratio, the bank cut its quarterly dividend from $0.17 to $0.05 to assist with capital generation.