CNN
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On Tuesday evening, Moody’s Investors Service downgraded New York Community Bancorp’s credit rating to junk status, dealing a blow to the embattled regional bank.
The downgrade was attributed to concerns about the challenges facing New York Community Bancorp following its recent disclosure of a surprise loss due to its exposure to the struggling commercial real estate market. This drop of two notches in the bank’s credit rating reflects a significant loss of confidence in its ability to repay its debt holders, according to Moody’s.
Moody’s stated in the report that the bank’s core historical commercial real estate lending, along with the substantial and unexpected loss on its New York office and multifamily property, could affect confidence.
Following the downgrade, shares of New York Community Bancorp fell 17% in after-hours trading on Tuesday, adding to a regular trading selloff of 22%.
Credit downgrades can exacerbate the difficulties faced by struggling companies by raising their borrowing costs even further.
Moody’s also indicated that New York Community Bancorp’s funding and liquidity are considered relatively weak compared to its peers, as it relies on market-sensitive wholesale funding that can dwindle during times of stress.
Furthermore, Moody’s noted that one-third of the bank’s deposits are uninsured, raising concerns due to a past incident where uninsured deposits were withdrawn by nervous customers, leading to a bank run at Silicon Valley Bank.
Since disclosing the unexpected loss a week ago, New York Community Bancorp has seen its market value plummet by more than half, prompting the reduction of its dividend and a significant increase in its loan loss reserves.
Moody’s is currently reviewing New York Community Bancorp’s credit rating, which suggests that further downgrades may be forthcoming.
New York Community Bancorp has not responded immediately to a request for comment.
During a hearing on Tuesday, Treasury Secretary Janet Yellen declined to comment directly on New York Community Bancorp’s challenges. However, she mentioned that U.S. officials are closely monitoring the current banking stress and are working with banks to help them manage the risks associated with bad real estate loans.
Yellen expressed concern over the situation, stating that she believes it is manageable, though it may be stressful for some institutions.
