Diversification through M&A may be on the horizon for New York Community Bancorp, Inc. following a natural but abrupt change in leadership, according to analysts.
On Dec. 28, 2020, New York Community Bancorp announced that Joseph Ficalora is retiring from his posts as president, CEO and board member of the company and its subsidiary, New York Community Bank as of Dec. 31, 2020. Senior executive vice president and CFO Thomas Cangemi will be his replacement as president and CEO of the company and the bank. Chief accounting officer John Pinto was appointed executive vice president and CFO. Analysts were positive on the announcement and expect the news to be well received by the investor community, noting the length of time that Cangemi and Pinto have been at the bank. Analysts agreed that the change in leadership could be the start of a strategic change for the company.
In the press release, Cangemi said he plans to enhance the company's performance and evolve its business model. New York Community Bank has a niche business model with a focus on multifamily lending in New York City, but Cangemi could diversify the bank's business model during his tenure, Wedbush Securities analyst Peter Winter wrote in a Dec. 28, 2020 note.
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For years, Ficalora had suggested a deal was imminent. In a 2018 earnings call, he said the bank was in discussions about a potential combination. Still, the abrupt departure might signal a difference of opinion over the future direction of the company, RBC Capital Markets analyst Steven Duong wrote in a note. Ficalora notified the company he would retire after discussions with the board, according to a Form 8-K filed on Dec. 28, 2020.
"It seems plausible to us that there may have been disagreements or shortfalls pertaining to execution of the company's strategic direction," Duong wrote. "Perhaps at that meeting, the board made an offer that could not be refused."
The change in leadership opens the door for strategic change for the company to use its size and capital to improve funding, Janney Montgomery Scott analyst Christopher Marinac wrote in a report. He expects the company to seek out low-cost core funding through M&A over the next 18 months.
Wedbush Securities' Winter agreed that acquisitions could be the best way for the bank to diversify.
"Under Mr. Ficalora, NYCB made 11 bank acquisitions and typically sold most of the assets, using the proceeds to fund multi-family loan growth. However, if Mr. Cangemi plans to diversify the business model, what better way than through an acquisition and leveraging that bank's expertise in a particular line of business," he wrote.
Ebrahim Poonawala, an analyst with BofA Securities, echoed the sentiment that Cangemi could "energize" the bank's growth strategy through M&A. "While we don't anticipate any wholesale strategy changes, we expect the leadership transition to energize the organic and inorganic (M&A) growth strategies of the bank as the industry emerges from the Covid-19 downturn," Poonawala wrote.
Pointing to Cangemi's tenure with the bank, analysts were positive on the news and expect the investor community to be pleased.
Both Cangemi and Pinto have been at New York Community Bank since 2001. The length of their tenure and Cangemi's prior involvement in the bank's day-to-day operations should lead to a smooth transition and leave investors pleased, analysts wrote.
While the transition to Cangemi from Ficalora was expected eventually, the timing was abrupt, analysts said. Ficalora was with the bank for 55 years and helped it grow from $1 billion in total assets to $55 billion in total assets during his time.
A string of other recent CEO transitions are a signal that some U.S. banks are shifting their focus to the post-COVID-19 operating environment, Poonawala wrote. On Dec. 17, 2020, Synovus Financial Corp. announced its leadership transition plan. Prior to the announcement of its merger with Huntington Bancshares Inc., TCF Financial Corp. announced a change in management.
"This environment is likely to be marked by a challenging interest rate backdrop ... and accelerated transition to digital banking," he wrote. "These will require [management] teams to re-evaluate their growth strategies against strategic partnerships/M&A."