On the last day of January, New York Community Bank announced a dividend cut that sent its stock price plummeting and sparked new fears of commercial real estate distress.
Cue the lawsuits.
New York Community Bank CEO Thomas Cangemi and CFO John Pinto face two suits from disgruntled stockholders alleging securities violations. Both seek class-action status.
A third class-action names executives of the bank, including Cangemi, in a shareholder derivative action — an investor suit filed against parties that allegedly wronged a company.
That’s not all. On Tuesday, twin press releases announced investors had lobbed two other cases at NYCB, each alleging violations of federal securities law. Those proposed class actions have been filed, according to the releases, but do not yet appear in court records.
A spokesperson for the bank did not respond to a request for comment. The Securities and Exchange Commission has not initiated legal proceedings against it.
The five cases make similar claims, that NYCB issued false or misleading statements about the health of its loan book. The three available suits allege the bank failed to report “higher net charge-offs and deterioration in its office portfolio,” which would likely result in higher loan losses.
The shareholders note that NYCB in a 2022 filing acknowledged its “allowance for credit losses might not be sufficient to cover out actual losses.” In the same filing, the bank “falsely assured investors” that it believed the provision to be sufficient, the suit filed by investor Dale Miskey reads.
The bank reported a surge in bad office debt in the third quarter of 2023, driven by a $28 million mortgage on a Syracuse property and a $112 million Manhattan office loan.
The shareholders also allege the bank failed to disclose that its acquisition of Flagstar Bank in late 2022 and of Signature Bank’s non-commercial real estate loans last year would bump it into a larger bank category, requiring it to set aside more money for potential credit losses.
NYCB did not build up the capital to meet that standard or offset risk and “falsely” assured investors that the company had “adequate internal risk and disclosure controls in place” for its “rapid growth,” the investors claim.
In withholding that information, executives enabled an “artificial inflation in the price of NYCB common stock,” the Miskey suit reads.
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Before it acquired some of Signature’s loans, NYCB’s share price shot up to nearly $14 last July from $6.50 on March 17.
The stockholders add that the bank gave no warning that the company’s dividend would be slashed to 5 cents per share in the fourth quarter from 17 cents in the third, despite mounting pressure from the Office of the Comptroller of the Currency, a top watchdog of the space, Bloomberg reported.
In the week following the dividend chop and Moody’s subsequent downgrading of the bank’s credit rating to junk, shares of NYCB fell by 67 percent to $4.20, their lowest level since 1997. The bank’s stock was trading at $4.58 as of mid-day Thursday.