In a recent turn of events, New York Community Bancorp is now facing a shareholder lawsuit after the bank announced unexpected losses in its commercial real estate loans and made the decision to cut its dividend. As a result, the bank's stock price plummeted by more than half, leading disgruntled shareholders to file a proposed class action against the lender.

The lawsuit, filed in Brooklyn federal court, alleges that New York Community Bancorp deceived investors by failing to disclose the need for additional reserves to cover credit losses and the decision to reduce its dividend in order to preserve capital. Shareholders, led by Tennessee resident Walter Lemm, argue that the bank had provided an overly optimistic assessment of its financial well-being and prospects since last March, thereby inflating its stock price.

Chief Executive Thomas Cangemi and Chief Financial Officer John Pinto are also named as defendants in the lawsuit. As of now, New York Community Bancorp has not yet responded to the allegations.

The Hicksville, New York-based lender, which operates around 400 branches under various names, surprised investors last Wednesday with a $260 million loss in the fourth quarter. The loss was attributed to the bank setting aside more funds to cover losses in offices and apartment buildings. Additionally, the bank announced a 71% dividend cut, citing the need to bolster capital to comply with regulatory requirements following its acquisition of failed Signature Bank in a government-arranged auction last spring. This acquisition significantly increased the bank's overall assets to well above $100 billion.

New York Community Bancorp's recent challenges have raised concerns about other midsize lenders exposed to commercial real estate. Landlords have been grappling with low occupancy rates due to the ongoing pandemic, while elevated interest rates have made loan refinancing more expensive.

Reflecting the impact of these revelations, New York Community Bancorp's shares experienced a significant decline, dropping by $1.02 or 18.9% to $4.38 in Tuesday afternoon trading. This compares with a price of $10.38 on January 30, before the bank released its quarterly results.

It is not uncommon for companies to face shareholder lawsuits following unexpected news that negatively affects stock prices. The case, titled Lemm v New York Community Bancorp et al, is currently being heard in the U.S. District Court, Eastern District of New York, with the docket number 24-00903.