NYCB Credit Grade Lowered to ‘Junk’ By Moody’s

New York Community Bank (NYCB) has had its credit rating cut to “junk.”

The downgrade late Tuesday (Feb. 6) by Moody’s Investment Services marks the latest setback for the lender, which last week announced a dividend cut and an unexpected loss, leading its shares to tumble 60%.

NYCB is dealing with “multifaceted” financial risks and governance challenges, Moody’s assessment said, per a report by Bloomberg News. The group said it could take its rating even lower if conditions continue to decline.

The bank on Tuesday released updated, unaudited financial information, saying its deposits were stable and that it had “ample liquidity.”

“Despite the Moody’s ratings downgrade, our deposit ratings from Moody’s, Fitch and DBRS remain investment grade,” NYCB CEO Thomas Cangemi said in a news release. “The Moody’s downgrade is not expected to have a material impact on our contractual arrangements.”

NYCB had been considered one of the winners of the 2023 banking crisis, which saw the collapse of Silicon Valley Bank and Signature Bank. NYCB — through its subsidiary Flagstar — acquired Signature in March of last year.

The lender last week reported a loss of $260 million in the fourth quarter of 2023, compared to a gain of $164 million in the same quarter the year before.

Bank executives said the loss was due to an increase in expected loan losses, especially from loans tied to office buildings. 

Speaking during an earnings call, Cangemi said that the bank was cutting its dividend to comply with banking regulations, as the acquisition of Signature Bank pushed NYCB’s assets above $100 billion, necessitating more stringent capital requirements.

The bank has also said the integration of the Signature acquisition would take longer than anticipated and might not be concluded until next year.

The Bloomberg report notes that the bank’s decision last week to slash dividends came after pressure from the Office of the Comptroller of the Currency. NYCB has also recently seen two executives overseeing risk and auditing recently leave.

Risk and auditing functions are a bank’s “second and third lines of defense,” the Moody’s report said. “In Moody’s view, control functions with strong knowledge of a bank’s risks are key to a bank’s credit strength.”

NYCB said Tuesday it was working to hire a new chief risk officer and chief audit executive “with large bank experience.”

As noted here last week, NYCB’s troubles led to a larger sell-off in the regional banking space, as investors and analysts grew worried about the sector.