NYCB’S TROUBLES EMPHASIZE VALUE OF COMMUNICATION

*This article published before New York Community Bancorp announced on March 7 a private equity infusion of more than $1 billion, as well as the appointment of former Comptroller of the Currency Joseph Otting as CEO and former Secretary of the Treasury Steven Mnuchin to the board.

New York Community Bancorp made headlines when it reported a $260 million loss in the fourth quarter on Jan. 31, primarily due to a large increase in its provision for loan losses. The holding company for Flagstar Bank also slashed its dividend to 5 cents per share. 

That was just the start of a wave of bad news about the $116 billion company’s performance.

By the end of February, former Flagstar CEO Alessandro DiNello, who had been elevated to executive chairman earlier in the month, replaced Tom Cangemi as CEO. The bank also cited weaknesses in internal controls related to loan review and on separate matters, took a $2.4 billion goodwill impairment charge, adding to its fourth quarter losses. The next day, the company then named a new chief risk officer and chief audit executive. As of March 1, the stock had plummeted 66% since the January earnings announcement. New York Community declined to comment for this story.

It’s impossible to predict if the Hicksville, New York-based bank could have avoided some of the negative blowback if it had handled its messaging a little differently. With industry observers anticipating turbulence in commercial real estate, some of the reaction to New York Community’s initial earnings news was likely unavoidable. Shareholders never like to see a dividend cut, and the market hates uncertainty. 

“The best advice now is to be completely transparent,” says Fraser Seitel, CEO of Emerald Partners, a communications consulting firm, speaking about New York Community’s disclosures so far. “Get a plan. Look out a year and say, ‘Here’s what we’re going to do to right the ship and get this thing turned around.’ And commit to it publicly. That’s what I would do.”  

It’s inevitable that a bank will one day have to disclose bad news, such as a cyber incident, a regulatory action or disappointing financial results. Some disclosures will be less significant than others. But a strong communications strategy can help prevent turning bad news into an utter disaster.    

Tom Crosson, who was a corporate communications leader at SunTrust Banks before it merged with BB&T Corp. to become Truist Financial Corp., recalls a dilemma the bank faced in early 2018, when a branch employee stole and attempted to sell information on 1.5 million customers. 

After gathering all the information it could about the incident, notifying law enforcement and consulting with its legal team, management decided that CEO Bill Rogers would make a statement during the Atlanta-based company’s first quarter earnings call in April 2018. In addition to disclosing the theft, he also detailed steps the company had taken up to that point and how it planned to deal with the problem in the future.   

Being quick and to the point about the incident minimized the reaction of investors and the media.

“It was a one-day news cycle because we went by the playbook,” says Crosson.Today, he’s senior director of strategic communications with the railway Norfolk Southern. 

Since the theft happened just a few months after Equifax announced a data breach affecting 147 million people, Suntrust executives wanted to err on the side of transparency by disclosing the attempted compromise, he recalls. 

Crosson believes the incident at Suntrust underlined a core principle of effective crisis communication: Get your ducks in a row where legal and regulatory guidelines are concerned, and then be straightforward about the bad news and the company’s plan to address it. 

Management and the board should lay the groundwork for crisis communication well before it’s necessary. Build relationships with the media outlets that cover the company. Pay attention to the news and to what’s happening with other banks, and try to anticipate how your organization might handle a similar problem, Crosson says. 

“We saw what happened at [Silicon Valley Bank]. It quickly turned into a much more dire situation because of communications,” he says. Silicon Valley Bank failed in March 2023 after disclosing a $1.8 billion loss and planned capital raise in a press release; that sparked a run on the bank’s deposits days later. “Every bank should ask themselves after that, ‘What will we do in a similar circumstance?’” 

When it comes time to report quarterly earnings, directors — particularly those on the audit committee — may want to question management about the communications plan for conveying any negative news. 

“If you’re the head of the audit committee, and you’ve got some real questions, you can’t be reluctant to pursue them,” Seitel says. “You can’t be diplomatic, and you can’t be polite all the time. You’ve got to challenge management on what it’s doing.”

While the data theft at SunTrust had clear start and end points before the company publicized the news, a firm could find itself in the midst of an ongoing crisis. The derailment of a Norfolk Southern train in East Palestine, Ohio, in February 2023, dominated the news cycle. The company is still working to rebuild the community. 

Crosson says the disaster underscored the importance of regular, ongoing internal communication. Norfolk Southern has been routinely communicating with the public as well as state and federal agencies, and it needed to be consistent in its messaging to all of those parties.

To achieve that, the company hosted regular internal conference calls with its communications team, and maintained an internal communications channel that allowed employees to get real-time updates and ask questions about the situation as it unfolded. 

“If you are in a situation that’s very dynamic, like with East Palestine, new information is constantly coming to light, and the biggest thing is that you want to be consistent in your messaging,” Crosson says. “You want to ensure that the public is receiving accurate and consistent information because otherwise, that’s where issues start to arise.”