Is Sandro DiNello the right leader for a struggling New York community?

Alessandro “Sandro” DiNello spoke Wednesday about Flagstar Bancorp’s turnaround. “It took us 10 years to do this, but we did it,” the former Flagstar CEO said. “If you do it the right way, you’ll get there over time. And you don’t try to do things too fast and put safety and soundness first, and it can be done.”

When Alessandro “Sandro” Dinello Talk to analysts early Wednesday morningLess than an hour after he was announced as executive chairman of New York Community Bank, one of the first points he made was his experience dealing with tough regulatory issues.

DiNello served as CEO of Flagstar Bancorp from 2013 until its acquisition by New York Community in 2022. Over the course of nine years, Flagstar dealt with numerous regulatory issues that arose during the 2008-2009 mortgage crisis.

“We were a single mortgage company that got hit hard in the Great Recession,” Dinello said Wednesday, recalling his time at Flagstar Michigan. “It was a tough time, but we got through it by putting the right team in place.” overcome difficulties.” Establish a strong risk and compliance framework and establish the right business model. “

Later on the phone, Dinello, a 1975 graduate of Western Michigan University, noted that he began his career as a bank examiner.

The second is the emphasis on supervision compliance It’s been a painful week for Long Island’s New York communityeventually announcing that Dinello would be taking on a more hands-on role.

January 31, bank Announced net loss of $260 million The company also cut its dividend by 70% in the fourth quarter, driven by a sharp increase in reserves that executives said was necessary to build capital. Over the next week, the company’s shares fell 59%.

Industry observers believe the bank’s regulator may be responsible for the unexpected bad news, although the New York community is tight-lipped about what happened.

On the same day as the earnings report, Jefferies downgraded New York Communities’ stock to “hold” from “buy,” citing the “unexpected acceleration of regulatory mandates” to comply with regulations for large banks.

Now, it’s largely up to Dinello to navigate the choppy waters ahead. While Thomas Canjimi remains president and CEO of New York Communities, On Wednesday, Dinello answered most of the questions posed by stock analystsHe said he has the right skills and experience to turn around the $116.3 billion bank.

Earlier in his career, DiNello worked at Security Savings Bank in Jackson, Miss., which was acquired by a bank in 1994 that later became Flagstar.

Over the next few decades, Dinello’s responsibilities included leading the bank’s government affairs and he also served as branch banking supervisor, an experience he believes will serve him well in his new role in the New York community.

“I built the Flagstar branch network. These are people who know how to take care of customers,” Dinello said on a conference call Wednesday, adding that frontline bankers in the New York community have a similar rapport with customers.

“Because of this, our retail branches have seen virtually no deposit outflows,” he said just hours after the New York community released a deposit update aimed at reassuring investors that their funds remain solid.

When DiNello became CEO of Flagstar in 2013, he succeeded A predecessor who lasted only eight monthsFlagstar, primarily a mortgage lender, is in a tough spot. From 2007 to early 2012, the company lost nearly $1.4 billion.

In 2010, Flagstar entered into a regulatory agreement with the Federal Reserve that required the bank to submit an annual capital plan and obtain a written no-objection opinion from the Fed before paying dividends or repurchasing stock.

Then in October 2012, the lenders signed a consent order with the Office of the Comptroller of the Currency covering matters including its regulatory capital, enterprise risk management and liquidity.

There are more regulatory headaches ahead. In September 2014, the Consumer Financial Protection Bureau Ordered Flagstar to pay $37.5 million Fines and restitution for allegedly preventing homeowners from obtaining foreclosure relief.

But over time, Flagstar’s crisis-era regulatory headaches were resolved. The OCC’s consent order was lifted in December 2016. Nearly two years later, the Fed’s regulatory agreement was also dissolved.

Flagstar’s financial performance also gradually improved while Dinello was at the helm. Dinello said on Wednesday that its net interest margin was less than 2% when he became chief executive, but had risen to about 4% by the time the bank was acquired.

“It took us 10 years to do it, but we did it,” Dinello said. “If you do it the right way, you do it gradually and you don’t try to do it too fast. , and you can stay safe.” And make soundness a priority, and it can be done. “

As the U.S. mortgage market boomed, Flagstar posted net profits of more than $1.3 billion between 2015 and 2020, including $538 million in the first year of the COVID-19 pandemic.

During Flagstar’s January 2021 quarterly earnings call, DiNello described 2020 as the most successful year in the company’s history. Three months later, New York Community announced plans to acquire Flagstar in an all-stock deal valued at approximately $2.6 billion.

A month before the deal was announced, Flagstar resolved one of the last regulatory issues of the crisis era. The bank met its obligations in a 2012 settlement with the Justice Department involving false certifications of government-backed bad loans. Flagstar agrees to pay $70 million$48 million less than initially indicated as owed.

when new york community Acquisition to close in December 2022, Dinello becomes non-executive chairman of the combined company. The events of the past two weeks have pushed him into more of a day-to-day leadership role.

Dinello and other top executives have been buying stock in the company since the New York community was plunged into chaos. The purchases are similar to those made by area bank CEOs last spring as they tried to convince ordinary investors that their banks were sound.

Dinello purchased more than $200,000 in stock on Friday, according to a securities filing. The company’s stock price rose 17% after news of the stock purchases by senior executives was disclosed.

DA Davidson analyst Peter Winter said while Friday’s insider stock buying provided some “calm”, a sign of stable or growing deposits would be key.

“It’s all going to depend on deposits – it really is,” Winter said. “If they release a mid-quarter update and deposits fall, then the stock will sell off.”

Keefe, Bruyette & Woods’ Christopher McGratty was one of the analysts to welcome DiNello’s new role, writing in a research note that DiNello was the “architect” of Flagstar’s operational and regulatory restructuring.

“Dinello has a strong reputation for turning around Flagstar Bancorp,” McGraty wrote, adding that the executive’s direct communication on Wednesday’s conference call, including acknowledging the challenges facing New York communities, should help get things started. Restore confidence.

“He is well known on Wall Street and we think his experience in dealing with these issues should be helpful to NYCB,” McGraty added.

Some of the challenges facing the New York community revolve around meeting regulators’ expectations for a bank with more than $100 billion in assets — a threshold the bank crossed last spring when it acquired the partially bankrupt Signature Bank.

During Wednesday’s conference call, Dinello discussed the company’s plans to reduce its commercial real estate concentration, sell nonstrategic assets and build capital. In other forums, he spoke of his leadership qualities.

“I am willing to take risks – calculated risks,” he said in a statement. 2017 Detroit Free Press interview“If you’re smart about the risks you take and do it in a disciplined way, it will work out.”

“I don’t use the word ‘pressure,'” he said In a 2020 podcast interview.”This is beyond my vocabulary.”

Raymond James analyst Daniel Tamayo said Dinello has proven to be a capable leader during a challenging period for Flagstar Bank.

“I remember, when I got the Flagstar story, ‘Why would they put a guy there when the company was almost bankrupt to lead them out?’” Dinello ended up getting the job, Tamayo said. The best candidate.”

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