New York Community Bancorp, already facing significant challenges, encountered another setback as Moody’s Investors Service downgraded its credit rating to junk status on Tuesday evening. The downgrade was prompted by concerns surrounding the bank’s recent revelation of a surprise loss linked to its exposure to the struggling commercial real estate market. This two-notch drop in credit rating reflects a loss of confidence in the bank’s ability to meet its debt obligations.
Moody’s highlighted NYCB’s historical reliance on commercial real estate lending, emphasizing the substantial and unexpected loss incurred on its New York office and multifamily properties. The downgrade triggered a sharp decline in the bank’s stock price, with shares tumbling 17% in after-hours trading, compounding a previous 22% decline during regular trading hours. Such credit downgrades can exacerbate challenges for struggling companies by increasing their borrowing costs.
The rating agency also expressed concerns about NYCB’s funding and liquidity, which are perceived as weaker compared to its peers. Notably, the bank heavily depends on market-sensitive wholesale funding that may become scarce during periods of financial stress. Additionally, Moody’s noted that a significant portion of NYCB’s deposits are uninsured, raising the specter of potential funding and liquidity pressures if depositor confidence wanes, akin to the scenario witnessed at Silicon Valley Bank last year.
With the bank’s market value plummeting and its financial position deteriorating, Moody’s placed NYCB’s credit rating under review, signaling the possibility of further downgrades. Despite these challenges, New York Community Bancorp did not provide an immediate comment on the downgrade.
Meanwhile, Treasury Secretary Janet Yellen refrained from commenting directly on NYCB’s situation during a hearing on Tuesday. However, she acknowledged the careful monitoring of banking stress by US officials and highlighted regulatory efforts to assist banks in managing risks associated with problematic real estate loans. While Yellen expressed concern about the situation, she also indicated a belief in its manageability, albeit with recognition that certain institutions may be significantly stressed by these issues.