Loan review major omissions lead to a steep drop in New York Community Bank (NYCB.US) stock price. Analysts recommend a cautious wait-and-see approach.

The stock price of New York Community Bank (NYCB.US) fell over 20% in pre-market trading on Friday, after the bank discovered significant deficiencies in its loan review process. It is understood that the bank's assessment of its internal controls has not been completed. In a document released by New York Community Bank on Thursday evening, it stated, "It is expected that it will be disclosed in the 2023 10-K form that as of December 31, 2023, its disclosure controls and procedures and internal control over financial reporting are ineffective." The bank plans to describe its plan to address this deficiency when submitting the 2023 10-K form. The submission of this document has been delayed due to some issues related to the acquisition of signed bank assets. New York Community Bank is expected to submit the 10-K form within a 15-day grace period and anticipates that there will be no substantial difference in operating income statement in the 10-K from the full-year performance disclosed in the amended statement, which includes a $2.4 billion goodwill impairment charge. Analysts remain cautious Citi analyst Keith Horowitz stated, "While it is clear that there were process deficiencies, the loan portfolio has been well scrutinized, and even though control measures were not sufficient, it does not appear that there will be financial impacts beyond what we already know because most of the issues in the portfolio seem to have been addressed." His most optimistic guess is that management will set a "remediation target of less than a year." Horowitz gave the stock a neutral/high risk rating and pointed out that New York Community Bank has the lowest uninsured deposit ratio among its peers and ample liquidity. "However, this news and its impact on stock price add more pressure on its deposit taking business and profitability." Furthermore, he believes that the company is unlikely to be sold as he sees few potential buyers for the bank. Likewise, JPMorgan analyst Steven Alexopoulos also maintained a neutral rating on the stock, stating that while the newly disclosed information clearly does not restrict the bank's operations/loan activities or lead to substantial cost increases (beyond what was already identified in the fourth quarter 2023 results), it further increases uncertainty surrounding the company. The analyst also noted that he believes this situation "is specific to New York Community Bank and does not represent the pressures/uncertainties facing regional banks more broadly." In a report to clients, Alexopoulos wrote that the weak controls, coupled with the recent departures of the Chief Risk Officer and Chief Audit Officer from the company, as well as the recent downgrade of the bank's credit rating, have put New York Community Bank's risk position "beyond our comfort level." "We believe a cautious strategy of waiting is advisable for investors."