NYCB Receives Junk Credit Rating from Moody’s

The credit rating of troubled US regional bank New York Community Bancorp (NYCB) Inc. received a downgrade from Moody’s Investors Service on Tuesday, with the rating agency warning of more grade cuts.

Moody’s trimmed all NYCB’s long-term and a few short-term ratings by two levels to Ba2 from Baa3 due to the unexpected losses on its commercial real estate loans, earnings pressure, and a drop in its capitalization.

The lender’s commercial banking arm, Flagstar Bank, was also downgraded to Baa2 from A3.

Moody’s said further reductions on NYCB’s rating remain under review, while it saw a small likelihood of an upgrade in the next 12 to 18 months.

NYCB’s Financial Struggles, Credit Rating Risk to Persist

Moody’s move comes after NYCB posted sharp losses in the fourth quarter and slashed its dividend, prompting a 26-year low on its stock’s price on Tuesday to eliminate about 60% from its value in less than a week.

The shares were last trading 16.67% lower in after-hours.

The credit grader stated that the reduction was a result of the firm’s “multi-faceted financial, risk-management, and governance challenges.”

The bank is facing higher risk from elevated interest rates and inflation, which are causing a steep rise in costs for rental property owners, a segment that accounts for most of NYCB’s loan portfolio, according to Moody’s.

The lender observed the impact of such a surge, with its annual provision for credit losses (PCL) soaring more than 500% to $833 million from $133 million in 2022. NYCB is expected to remain pressured in the near term on the Federal Reserve’s anticipated higher-for-longer rates.

Moody’s could push the firm’s rating lower under several scenarios. NYCB’s credit performance falters further, its market funding utilization increases in relation to deposit funding, it becomes unable to improve capitalization, or depositor sentiment weakens to test its liquidity.

Weaker depositor confidence is currently the most significant risk the bank faces, according to Moody’s, noting that its liquidity position is more feeble compared to its peers due to heavier reliance on wholesale funding and a smaller set of liquid assets.

NYCB’s sudden quarterly loss recalled concerns over a banking crisis in the US last year when the collapse of Silicon Valley Bank (SVB) and Signature Bank signaled a wider downfall for regional banks.

The firm acquired Signature Bank in 2023 to claim $36.0 billion worth of its liabilities and $38.4 billion in its assets.