NYCB targeted class action lawsuit

NYCB faces class-action lawsuit over securities fraud allegations. Bank's shares tumble 60% after Moody's downgrades credit rating to "junk."

New York Community Bank (NYCB) is currently facing a class-action lawsuit for alleged securities fraud. The lawsuit was filed by law firm Glancy Prongay & Murray LLP after NYCB acquired specific assets of Signature Bridge Bank on March 20, 2023, and reported a net loss of $252 million for the fourth quarter on Jan. 31. The class-action lawsuit is on behalf of those who acquired NYCB Securities between March 1, 2023, and Jan. 30, and suffered losses on their investments.

The lawsuit alleges that NYCB's defendants failed to disclose various material adverse facts about the company's business, operations, and prospects, which ultimately led to financial losses for investors. NYCB has not yet provided a response to the allegations.

NYCB announced on Jan. 31 that it experienced an unexpected loss and would be cutting its dividend. This was attributed to an increase in expected loan losses, particularly from loans tied to office buildings. The bank also mentioned that its acquisition of Signature Bank had pushed its assets over $100 billion, triggering stricter capital requirements and leading to the dividend cut.

Following these events, Moody's Investment Services downgraded NYCB's credit rating to "junk," causing its shares to plummet by 60%. Moody's cited "multifaceted" financial risks and governance challenges as reasons for the downgrade, and stated that the rating could be lowered further if conditions continue to decline.

In response to the downgrade, NYCB released updated financial information on Tuesday, Feb. 5, and CEO Thomas Cangemi stated that the bank had taken actions to strengthen its balance sheet and risk management processes. Despite the Moody's ratings downgrade, NYCB emphasized that its deposit ratings from Moody's, Fitch, and DBRS remain investment grade.