Three of the five largest bank failures in U.S. history took place over the course of just a few weeks last Spring. Because U.S. government officials acted forcefully at the time, this dangerous sequence did not trigger a contagion event across the banking sector generally. But while the Fed and others managed to stave off further bank failures, underlying problems persisted at certain banks – in particular, problems relating to the commercial real estate sector continued to weigh on banking institutions. As the Wall Street Journal put it in an article late last week, “Investors have wondered when the pain from the downturn in commercial property would hit banks.” As the Journal noted in the same article, the commercial property-related pain has now arrived for some banks. Several banks, including New York Community Bancorp (NYCB), suffered significant stock price drops after the banks last week announced steep increases in their loss reserves in their commercial real estate portfolios.

And now these developments have translated into securities litigation, as a plaintiff shareholder has launched a securities class action lawsuit against NYCB and certain of its executives. These developments and the filing of the lawsuit suggest while the Banking Crisis of 2023 may have been contained, continuing problems in the banking sector could be a factor in the number of securities class action lawsuit filings during the year. A copy of the February 6, 2024 complaint filed against NYCB can be found here.


NYCB is a commercial banking and lending institution based on New York. Significantly, NYCB was the banking institution that in March 2023 acquired though a subsidiary substantially all of the assets of the failed Signature Bank. The Signature Bank asset acquisition had the effect of making NYCB a substantially larger bank, subjecting NYCB to stepped up levels of regulatory scrutiny, as well as heightened capital and liquidity requirements.  

On January 31, 2024, when NYCB released its financial results for YE 2023, it announced a fourth quarter loss of $252 million as a result of a $552 million provision for loan losses, primarily due to increased charge-offs and a significant increase in the allowance for credit losses. The company also announced that it had cut its quarterly dividend as part of an effort to shore up its capital. Among other things, the bank said in connection with these results that these actions were “necessary enhancements” after NYCB “crossed th[e] important threshold [of becoming a $100 billion bank] sooner than anticipated as a result of the Signature transaction.” Crossing this $100 billion threshold subjected NYCB to enhanced banking standards and requirements. According to the subsequently filed securities class action complaint, the company’s share price decline nearly 38% on this news.

The Lawsuit

On February 6, 2024, a plaintiff shareholder filed a securities class action lawsuit in the Eastern District of New York against NYCB and certain of its executives. The complaint purports to be filed on behalf of a class of investors who purchased NYCB’s securities between March 1, 2023, and January 30, 2024.

The complaint alleges that during the class period, the defendants failed to disclose to investors: “(1) that the Company was experiencing higher net charge-offs in its office portfolio; (2) that, as a result, NYCB was reasonably likely to incur higher loan losses; (3) that, as a result of the foregoing and NYCB’s status as a Category IV bank, the Company was reasonably likely to increase its allowance for credit losses; (4) that the Company’s financial results would be adversely affected; (5) that, to preserve capital, the Company would reduce quarterly dividend to $0.05 per common share; and (6) as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint seeks to recover damages on behalf of the plaintiff class.


Since the series of bank failures last Spring, there has been a steady drumbeat of stories in the business press about the possibility of continuing problems in the banking sector, particularly with respect to commercial real estate. The concern for the banks is that as commercial real estate loans come due, declining occupancy rates leading to declining property valuations mean that borrowers may be unable to refinance or are only able to refinance on disadvantageous terms. These problems are not just  vexing NYCB; indeed, when the Journal reporting on NYCB’s increase in credit reserves, it also reported that a number of other banks took similar steps at the same time.  Nor are the problems about to end anytime soon; indeed, the Journal article cited one commentator as saying that “The commercial real-estate pain in the office sector is just starting,”

While this sequence of events could raise concerns about many banks, particularly those with an exposure to downtown office buildings, there is also a sense in which NYCB’s problems were specific to its own situation. Many of the steps the bank took that led to the share price decline and that drew the lawsuit are related to the bank’s adjustments to its new status as a larger bank following its acquisition of Signature Bank’s assets. Not every bank is going to have to make all of the kinds of adjustments that NYCB found itself having to take here.

That said, however, the continued problems in the banking sector, particularly with respect to commercial real estate, are worrisome. Lawsuits pertaining the turmoil in the banking sector were a significant factor in the number of securities class action lawsuit filings during 2023 (which, overall, increased during the year compared to the year before). We are still early in the new year and it is hard to say for sure how the year will unfold. However, I don’t think I am going out on a limb by saying that continuing problems in the banking sector could wind up being a factor in the number of securities lawsuits filed this year as well. Obviously not all banks present the same risks; the biggest concerns are for banks with a heavy loan portfolio concentration in downtown office space (particularly in certain cities, such as New York, San Francisco, and Dallas).