Concerns about New York Community mount after chief risk officer’s exit

Nearly a week after New York Community Bancorp’s fourth-quarter earnings report triggered a substantial decline in the company’s stock price and deepened a sense of wariness about its loan portfolio, industry observers are now watching for signs of deterioration in its deposit base.

They’re also wondering who’s overseeing the enterprise risk management function at the Hicksville, New York, company, which nearly doubled in size over the past 16 months.

A spokesperson for New York Community — which crossed the $100 billion-asset threshold in late March 2023 when it acquired large chunks of the failed Signature Bank — confirmed Monday night in an email that Nicholas Munson, the company’s chief risk officer since 2019, left “in early 2024.” 

Munson’s departure, which was first reported by the Financial Times, leaves a significant leadership gap that may exist for a couple of months, said Clifford Rossi, former chief risk officer for Citigroup’s consumer lending division.

How long the chief risk officer job is open depends on how quickly New York Community can identify, interview and vet qualified candidates, and then ultimately hire someone, he said.

Finding the best candidate as quickly as possible is paramount, said Rossi, who is now a professor at the University of Maryland School of Business.

“This is not some officer buried in the hierarchy,” Rossi said Tuesday. “This is the most senior risk officer in the organization, so it’s important for the bank to put a person in that place, and it’s important for regulators to see that they are putting someone in place.”

Munson joined New York Community in 2018 as its chief audit executive, according to a biography that has since been removed from the company’s website. As the chief risk officer, he was responsible for “designing, implementing and maintaining an effective risk management program that aligns to applicable regulatory guidance and is commensurate with the company’s size, scope and complexity,” the biography read.

It’s unclear whether Munson left of his own accord, whether company executives were somehow dissatisfied and felt the need to seek someone more familiar with overseeing risks at a larger company or whether regulators pushed the bank to make a change.

It’s also unclear who is currently overseeing risk management operations at New York Community. The company’s spokesperson declined to say if someone has temporarily taken over the duties of the C-suite level role or how the organization plans to fill it on a more permanent basis. 

Some analysts believe that the bank will move quickly to find someone new.

“They’re going to hire a chief risk officer in no time, there’s no doubt,” said Casey Haire, an analyst at Jefferies. “I don’t know why [Munson] left, but rest assured they’ll be looking.”

Haire pointed out that New York Community’s 2024 expense guidance calls for an estimated $80 million increase in spending earmarked for annual compensation and benefits. Altogether, the bank expects to hike spending by $265 million, including costs related to becoming a so-called Category IV bank, which has $100 billion to $250 billion of total consolidated assets.

The consequences of a vacancy in the chief risk officer role drew scrutiny last year when Silicon Valley Bank’s failure set off months of uncertainty in the banking industry.

Silicon Valley Bank left the chief risk officer position unfilled for eight months, during which time the bank and its parent company, SVB Financial Group, grappled with a host of risks, such as rising interest rates, insufficient liquidity and the impacts of a slowdown in the venture capital marketplace.

New York Community’s situation is different, since the risk chief position was only recently vacated.

“It’s not like they were flying blind,” said David Chiaverini, an analyst at Wedbush Securities.

New York Community, which had $116.3 billion of assets at the end of December, months after joining the more heavily regulated tier of banks with at least $100 billion of assets, has been on a roller-coaster ride for the past week.

Last Wednesday, it reported a quarterly net loss of $260 million, driven by a large reserve build to protect against souring loans. The company also surprised Wall Street by slashing its dividend by 70% — from 17 cents to five cents — a move that executives said was necessary in order to build capital.

Those unexpected moves came at a time when analysts were already on alert about New York Community’s exposure to both office loans and rent-controlled multifamily loans, and they contributed to a sharp decline in the bank’s stock price. Shares fell 37% last Wednesday, and they have fallen by double digits on four of the last five trading days.

The stock closed Tuesday down more than 22% from the prior day’s close, and down more than 59% from a week ago.

After the market closed, Moody’s Investors Service downgraded New York Community’s long-term issuer rating by two notches, citing myriad headwinds.

In the past week, Jefferies and Compass Point Research & Trading have both downgraded the bank’s shares. On Friday, Fitch Ratings also downgraded the stock, saying in a note that the “timing of the announced actions” to meet the prudential standards for Category IV banks, as well as the size of the credit provisions, were “outside of Fitch’s baseline expectations.”

The lower the stock price sinks, the greater the chances that depositors will get spooked, Chiaverini said. In November, he downgraded shares in New York Community on two occasions, citing ongoing concerns about its “outsized [commercial real estate] exposure in a higher-for-longer rate backdrop” as well as its “sizable exposure” to New York City’s rent-regulated multifamily lending market.

“Now that the stock has taken a dive … there’s fear, and the key concern now is retaining their deposits,” Chiaverini said Tuesday. Some 36% of New York Community’s deposits are uninsured, he noted. If those uninsured funds go elsewhere, the bank will have to make up for them with borrowings, which are expensive and have a negative impact on the bank’s net interest margin.

In the past week, New York Community has not provided an update to investors about its deposit volume. But analyst Ebrahim Poonawala of Bank of America Securities said in a research note Monday that “feedback from management indicates that the bank is not seeing any unusual deposit inflows or outflows.”

Poonawala also noted that New York Community, through its Flagstar Bank subsidiary, has a “significant retail branch footprint, aiding its ability to raise retail deposits.”

Mark Fitzgibbon, an analyst at Piper Sandler, wrote in a note to clients that New York Community described its deposits situation on Tuesday as “business as usual.”

“We interpret this to mean that there is no meaningful deposit pressure,” Fitzgibbon wrote. “While it would be natural for the company to see a few customers react to last week’s headlines and diversify some funds, we do not think the company wants to be in a position of discussing deposit flows each day; hence their comments. We have also been scouring social media for any hints of short sellers trying to exert deposit pressure on the company and have not found anything too worrisome.”

For most of 2022, New York Community operated more than 230 branches in five states. Its acquisition of Troy, Michigan-based Flagstar Bancorp in December 2022 boosted the branch count to about 400 spread across nine states. The March 2023 acquisition of Signature Bank added another 30 branches in the New York metro area and on the West Coast.

Deposits totaled $81.4 billion as of Dec. 31, 2023, a decline of 2% from the prior quarter.

Several banks that were experiencing deposit outflows last spring issued updates about their deposits, but Chiaverini said there’s reason to be cautious about that approach.

“There’s a debate as to whether putting out an interim update does more harm than good,” Chiaverini said. “Those banks that provided more frequent updates last year, it didn’t seem to help during the height of the chaos” that was sparked by Silicon Valley Bank’s failure.

Catherine Leffert contributed to this article.