NEW YORK, NY – Moody’s Investors Service downgraded New York Community Bancorp’s credit rating to junk status, marking a significant blow to the embattled regional bank. The downgrade comes after the bank shocked Wall Street with a surprise loss on its exposure to the struggling commercial real estate market, leading to a 17% drop in after-hours trading and a 22% selloff during regular trading.
The credit downgrade, dropping the bank’s credit rating two notches from its previous level, raises concerns about the bank’s ability to repay its debt holders. Moody’s pointed out that a third of the bank’s deposits are uninsured, which could potentially lead to significant funding and liquidity pressure if there is a loss of depositor confidence.
This development has raised worries about the bank’s funding and liquidity, with Moody’s warning that New York Community Bancorp’s funding and liquidity are viewed as a “relative weakness” compared with its peers. The bank’s reliance on market-sensitive wholesale funding that can dry up during times of stress further compounds its challenges.
Despite its troubles, the bank has not issued a response to the downgrade, but Treasury Secretary Janet Yellen mentioned during a hearing that US officials are monitoring the current banking stress, with regulators working to help manage the risks banks face from bad real estate loans. Yellen noted her concern, but expressed belief that the issue is manageable.
The situation remains precarious for New York Community Bancorp, as Moody’s has indicated that the credit rating remains under review, signaling the possibility of further downgrades in the future. The bank has lost more than half of its market value since revealing the unexpected loss, further complicating its recovery efforts.