A screen displays the trading information for New York Community Bancorp on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 31, 2024.
Embattled regional bank New York Community Bancorp suffered another blow Tuesday evening as Moody’s Investors Service downgraded its credit rating to junk status.
Moody’s said the downgrade was driven by concerns about “challenges” facing New York Community Bancorp after the lender shocked Wall Street last week by revealing a surprise loss on its exposure to the struggling commercial real estate market. The downgrade dropped the bank’s credit rating two notches from its previous level, marking a substantial loss of faith about the bank’s ability to repay its debt holders.
“NYCB’s core historical commercial real estate lending, significant and unanticipated loss on its New York office and multifamily property could create potential confidence sensitivity,” Moody’s said in the report.
Shares of New York Community Bancorp tumbled 17% in after-hours trading Tuesday evening after the downgrade. That loss is on top of a steep selloff of 22% during regular trading.
Credit downgrades can make life even harder for struggling companies by further raising their borrowing costs.
Moody’s warned that New York Community Bancorp’s funding and liquidity are viewed as a “relative weakness” compared with its peers, noting it depends on market-sensitive wholesale funding that can dry up during times of stress.
Moreover, Moody’s pointed out that a third of the bank’s deposits are uninsured. Last year, uninsured deposits at Silicon Valley Bank were yanked by nervous customers, fueling a classic bank run.
“The bank could face significant funding and liquidity pressure if there is a loss of depositor confidence,” Moody’s said.
New York Community Bancorp has lost more than half of its market value since revealing the unexpected loss a week ago, slashing its dividend and spiking its loan loss reserves.
Moody’s is keeping New York Community Bancorp’s credit rating on review, signaling further downgrades are possible.
New York Community Bancorp did not immediately respond to a request for comment.
Treasury Secretary Janet Yellen declined to specifically comment on New York Community Bancorp’s troubles during a hearing on Tuesday.
However, Yellen told the House Financial Services Committee that US officials are “monitoring the current banking stress carefully” and regulators are working with banks to help them manage the risks they face from bad real estate loans.
“I’m concerned. I believe it’s manageable, although there may be some institutions that are quite stressed by this problem,” Yellen said.