Moody’s Investors Service downgraded New York Community Bancorp’s credit rating to junk status after the regional bank revealed a surprise loss on its exposure to the struggling commercial real estate market. The unexpected loss and concerns about potential funding and liquidity pressure following the downgrade caused the bank’s shares to tumble 17% in after-hours trading, on top of a steep selloff of 22% during regular trading. The credit downgrade poses significant challenges for the bank, making it harder for struggling companies to raise borrowing costs and further raising concerns about New York Community Bancorp’s ability to repay its debt holders. Moody’s is keeping the bank’s credit rating on review, signaling that further downgrades are possible.
In addition to the credit downgrade, Moody’s expressed concerns about New York Community Bancorp’s relative weakness in funding and liquidity compared to its peers, as it depends primarily on market-sensitive wholesale funding that can dry up during times of stress. The report also highlighted that a third of the bank’s deposits are uninsured, which could lead to significant funding and liquidity pressure in the event of a loss of depositor confidence. Additionally, Treasury Secretary Janet Yellen declined to comment specifically on New York Community Bancorp’s troubles but assured Congress that US officials are monitoring the current banking stress carefully and working with banks to help them manage the risks they face from bad real estate loans.
The sudden credit downgrade has dealt a substantial blow to New York Community Bancorp, causing the bank to lose over half of its market value since revealing the unexpected loss. The bank’s core commercial real estate lending and the significant loss on its New York office and multifamily property have raised concerns about potential confidence sensitivity, making it a challenging time for the embattled regional bank as it faces mounting financial and liquidity pressures.