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Brendan McDermid/Reuters
A screen displays trading information for New York Community Bancorp on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., on Jan. 31, 2024.
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Embattled regional bank New York Community Bancorp suffered another blow Tuesday afternoon when Moody’s Investors Service downgraded its credit rating to junk status.
Moody’s said the downgrade was due to concerns about “challenges” facing New York Community Bancorp after the lender shocked Wall Street last week by revealing a surprise loss about their exposure to distressed commercial real estate market. The downgrade lowered the bank’s credit rating two notches from its previous level, marking a substantial loss of faith in the bank’s ability to repay its debtholders.
“NYCB’s historic major commercial real estate loan, significant and unforeseen loss on its New York office and multifamily property could create potential sentiment sensitivity,” Moody’s said in the report.
Shares of New York Community Bancorp fell 17% in after-hours trading Tuesday evening after the downgrade. That loss comes on top of a sharp 22% selloff during regular trading.
Credit rating downgrades can make life even more difficult for struggling companies by further increasing their borrowing costs.
Moody’s warned that New York Community Bancorp’s funding and liquidity is considered a “relative weakness” compared to its peers, noting that it relies on market-sensitive wholesale funding that can dry up in times of stress.
Additionally, Moody’s noted that one-third of the bank’s deposits are uninsured. Last year, unsecured deposits at Silicon Valley Bank were withdrawn by nervous customers, fueling a classic bank run.
“The bank could face significant funding and liquidity pressures if there is a loss of depositor confidence,” Moody’s said.
New York Community Bancorp has lost more than half its market value since disclosing the unexpected loss a week ago, cutting its dividend and increasing its reserves for credit losses.
Moody’s keeps New York Community Bancorp’s credit rating under review, indicating that further downgrades are possible.
New York Community Bancorp did not immediately respond to a request for comment.
Treasury Secretary Janet Yellen declined to comment specifically on New York Community Bancorp’s problems during a hearing Tuesday.
However, Yellen told the House Financial Services Committee that U.S. officials are “carefully monitoring the ongoing banking stress” and that regulators are working with banks to help them manage the risks they face due to real estate lending. uncollectible.
“I’m concerned. I think it’s manageable, although there may be some institutions that are quite stressed by this issue,” Yellen said.