Moody’s downgrades New York Community Bancorp to junk status
On Tuesday evening, Moody’s Investors Service downgraded New York Community Bancorp’s credit rating to junk status, adding to the bank’s ongoing struggles. This downgrade was driven by concerns over challenges the bank faces after revealing a surprise loss related to the struggling commercial real estate market. Consequently, the bank’s credit rating was dropped two notches, signaling a substantial loss of confidence in its ability to repay debt holders. The credit downgrade further hurt the bank’s shares, causing them to tumble 17% in after-hours trading in addition to a 22% selloff during regular trading.
Moody’s pointed out that New York Community Bancorp’s funding and liquidity are viewed as relatively weak compared to its peers. The bank depends on market-sensitive wholesale funding, which can dry up during times of stress. Moreover, a third of the bank’s deposits are uninsured, leading to concerns about potential confidence sensitivity. These challenges have caused the bank to lose more than half of its market value and has put significant pressure on its funding and liquidity. Furthermore, Moody’s has kept the bank’s credit rating under review, indicating that further downgrades are possible, highlighting the severity of the situation.
Treasury Secretary Janet Yellen stated during a House Financial Services Committee hearing that U.S. officials are monitoring the banking stress carefully and working with banks to help them manage risks associated with bad real estate loans. She expressed concern but noted that she believes the situation is manageable, despite acknowledging that some institutions may be quite stressed by this problem. This news of the credit downgrade and its subsequent impact on New York Community Bancorp highlights the challenges faced by the bank and raises questions about its ability to recover and regain confidence from investors and regulators.
