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NYCB shares tumble after regional lender swaps out CEO, says it identified ‘material weakness’ in internal controls

By Elisabeth Buchwald, CNN

New York (CNN) — Shares of New York Community Bank (NYCB) fell by as much as 20% in after-hours trading on Thursday after the beleaguered regional lender said in a filing it had identified “material weakness” in the company’s controls. The issues caused a $2.4 billion loss to shareholders last quarter, NYCB said.

The bank also announced that Alessandro DiNello, its recently appointed executive chairman, will be the new president and CEO, effective immediately.

The announcement comes just one month after NYCB reported it would slash dividends after reporting a surprise loss of $252 million last quarter, compared to a $172 million profit in the fourth quarter of 2022. That caused the stock to plunge, bringing it to its lowest level since 1997.

Amid the selloff, the company sought to reassure depositors and investors by notifying them that deposits were stable and had even increased slightly in the last quarter of 2023.

Thursday’s update is likely to invite new questions regarding the strength of the bank. The problems management identified had to do with “internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities.”

Such language mirrors post-mortem reports of Silicon Valley Bank and Signature Bank — both failed a year ago.

NYCB did not respond to CNN’s request for a comment.

The lender also announced it is delaying the release of its required annual financial disclosures, known as a 10-K, to focus on addressing the issues it identified. Unless the company provides an additional update, the 10-K will be the latest source of information on whether depositors are withdrawing their funds. The delay draws eerie parallels to First Republic Bank, which delayed reporting its quarterly earnings shortly before it failed.

Thomas Cangemi, the former CEO, will remain on the bank’s board of directors. His decision to resign earlier this week was not the result of any disagreements he had with NYCB regarding operations, policies or practices, a Thursday filing with the Securities and Exchange Commission said.

In the same filing, NYCB disclosed Hanif (Wally) Dahya resigned from serving as director of the board. In his February 25 resignation letter, he said he “did not support the proposed appointment” of DiNello to president and CEO.

Marshall Lux, who worked as a chief risk officer for Chase at the height of the Great Recession and was on NYCB’s board as an independent member, is taking on Dahya’s role effective immediately.

“The management changes aren’t overly surprising, but the material weakness is a tough headline,” analysts at KBW, a financial services firm, said in a note Thursday evening.

This story has been updated with additional context and developments.

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