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New York Community (NYCB) Faces Credit Downgrade by Moody's
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Following a downgrade by Fitch Ratings, New York Community Bancorp, Inc.’s (NYCB - Free Report) credit grade has been downgraded to junk by Moody’s Investors Service, a division of Moody’s Corporation (MCO - Free Report) . NYCB shares fell 17% in the after-market trading following MCO’s action.
NYCB’s long-term issuer rating has been downgraded two notches below investment grade to Ba2. Moody’s has said that the company’s ratings could be downgraded further if conditions deteriorate.
The ratings downgrades come less than a week after the regional bank shocked shareholders by posting unexpected commercial real estate (CRE) loan losses and announcing a 71% cut in its quarterly dividend.
Last week, NYCB, which acquired parts of failed Signature Bank in early 2023, set aside bigger-than-expected provisions for potential bad loans mainly due to its CRE exposure.
After the bank posted the unexpected huge fourth-quarter loss, there has been a significant drop in faith regarding its ability to repay debt holders. Shares of the company have declined to their lowest level in the past 27 years.
Moody’s stated, “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.”
Moreover, the rating agency has warned that NYCB’s funding and liquidity are viewed as a relative weakness compared with its peers. Moody’s said, “The bank could face significant funding and liquidity pressure if there is a loss of depositor confidence.”
Notably, NYCB has been facing multi-layered financial risks and governance challenges.
The bank has said that it is building capital to deal with the stricter regulatory requirements that came after the purchase of Signature Bank lifted its assets above a $100-billion threshold.
CRE is an area where borrowers are at increased risk due to high interest rates and low occupancies.
In recent days, concerns that a slump in commercial property values can hurt U.S. regional banks have intensified after various lenders signaled tensions in their portfolios.
Thus, Moody’s has decided to focus on the outlook for NYCB’s CRE portfolio, earnings, capitalization and use of wholesale funding as it weighs whether to cut grades again.
MCO will further assess governance, including risk and balance sheet management.
Conclusion
New York Community has been gaining from strategic acquisitions completed over the past couple of years.
However, as the operating environment turned challenging, the company had to take huge reserves to cover delinquencies in CRE loans. This substantially hurt its financials and led several ratings agencies, including Moody’s, to place the company’s ratings under review for a downgrade.
Over the past six months, NYCB shares have lost 68.3% compared with the industry’s 13.2% decline.
Image Source: Zacks Investment Research
Currently, NYCB carries a Zacks Rank #5 (Strong Sell).
In October 2023, Moody’s affirmed the investment grade credit and corporate rating of Baa3 for Hercules Capital, Inc. (HTGC - Free Report) . HTGC’s outlook was also affirmed at stable.
Seth Meyer, the chief financial officer of HTGC, stated, “We are very pleased that Moody’s has reaffirmed our Baa3 investment grade credit and corporate rating. This rating reflects our differentiated and diversified venture and growth stage lending and commitment to disciplined underwriting, as well as the scale of our institutionalized lending platform.”
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New York Community (NYCB) Faces Credit Downgrade by Moody's
Following a downgrade by Fitch Ratings, New York Community Bancorp, Inc.’s (NYCB - Free Report) credit grade has been downgraded to junk by Moody’s Investors Service, a division of Moody’s Corporation (MCO - Free Report) . NYCB shares fell 17% in the after-market trading following MCO’s action.
NYCB’s long-term issuer rating has been downgraded two notches below investment grade to Ba2. Moody’s has said that the company’s ratings could be downgraded further if conditions deteriorate.
The ratings downgrades come less than a week after the regional bank shocked shareholders by posting unexpected commercial real estate (CRE) loan losses and announcing a 71% cut in its quarterly dividend.
Last week, NYCB, which acquired parts of failed Signature Bank in early 2023, set aside bigger-than-expected provisions for potential bad loans mainly due to its CRE exposure.
After the bank posted the unexpected huge fourth-quarter loss, there has been a significant drop in faith regarding its ability to repay debt holders. Shares of the company have declined to their lowest level in the past 27 years.
Moody’s stated, “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.”
Moreover, the rating agency has warned that NYCB’s funding and liquidity are viewed as a relative weakness compared with its peers. Moody’s said, “The bank could face significant funding and liquidity pressure if there is a loss of depositor confidence.”
Notably, NYCB has been facing multi-layered financial risks and governance challenges.
The bank has said that it is building capital to deal with the stricter regulatory requirements that came after the purchase of Signature Bank lifted its assets above a $100-billion threshold.
CRE is an area where borrowers are at increased risk due to high interest rates and low occupancies.
In recent days, concerns that a slump in commercial property values can hurt U.S. regional banks have intensified after various lenders signaled tensions in their portfolios.
Thus, Moody’s has decided to focus on the outlook for NYCB’s CRE portfolio, earnings, capitalization and use of wholesale funding as it weighs whether to cut grades again.
MCO will further assess governance, including risk and balance sheet management.
Conclusion
New York Community has been gaining from strategic acquisitions completed over the past couple of years.
However, as the operating environment turned challenging, the company had to take huge reserves to cover delinquencies in CRE loans. This substantially hurt its financials and led several ratings agencies, including Moody’s, to place the company’s ratings under review for a downgrade.
Over the past six months, NYCB shares have lost 68.3% compared with the industry’s 13.2% decline.
Image Source: Zacks Investment Research
Currently, NYCB carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Rating Action by Moody’s on Other Finance Firms
In October 2023, Moody’s affirmed the investment grade credit and corporate rating of Baa3 for Hercules Capital, Inc. (HTGC - Free Report) . HTGC’s outlook was also affirmed at stable.
Seth Meyer, the chief financial officer of HTGC, stated, “We are very pleased that Moody’s has reaffirmed our Baa3 investment grade credit and corporate rating. This rating reflects our differentiated and diversified venture and growth stage lending and commitment to disciplined underwriting, as well as the scale of our institutionalized lending platform.”