Bank’s credit rating downgraded to junk by Moody’s; shares drop

New York Community Bank’s Shares Continue to Decline After Credit Downgrade

A sign is pictured above a branch of the New York Community Bank in Yonkers, New York, U.S., January 31, 2024. Mike Segar | Reuters

New York Community Bank’s shares continued their downward spiral Wednesday after Moody’s Investors Service cut the firm’s credit rating two notches to junk status. NYCB shares fell about 3%, trimming earlier losses of around 10%, in premarket trading. That followed a 22% decline Tuesday.

The regional bank has been in freefall since reporting a surprise loss last week, along with mounting losses on commercial real estate and the need to slash its dividend by 71% to shore up capital levels. The moves reignited concerns that some small and medium-sized banks could be squeezed by declines in profitability and losses on real estate holdings.

Late Tuesday evening, Moody’s issued a report stating that NYCB faced “multi-faceted financial, risk-management and governance challenges.” It downgraded all the bank’s long term ratings to Ba2 from Baa3, and warned the assessments remain on review for further downgrade.

“The downgrade reflects Moody’s views that NYCB faces high governance risks from its transition with regards to the leadership of its second and third lines of defense, the risk and audit functions of the bank, at a pivotal time,” Moody’s wrote. “In Moody’s view, control functions with strong knowledge of a bank’s risks are key to a bank’s credit strength.”

Overnight, NYCB issued a statement hours after the Moody’s report, stating that the downgrade isn’t expected to have a “material impact on our contractual arrangements.” The bank sought to boost confidence by issuing unaudited financial information as of Monday, stating that 72% of total deposits were either insured or collateralized, and that it had ample liquidity to cover uninsured deposits.

“We took decisive actions to fortify our balance sheet and strengthen our risk management processes during the fourth quarter,” CEO Thomas Cangemi said in the release. “Our actions are an investment in enhancing a risk management framework commensurate with the size and complexity of our bank.”

NYCB has begun searching for a new chief risk officer and chief audit executive “with large bank experience,” Cangemi added. Managers holding those roles left the bank in the months before its disastrous earnings report last week, Bloomberg reported.

This story is developing. Please check back for updates.

In light of the recent events, it’s important to consider the impact this may have on shareholders and the overall community. The downgrade of NYCB’s credit rating to junk status has raised concerns about the stability of the bank and its ability to navigate through financial challenges. The need to slash dividends and the departure of key managers have further contributed to the uncertainty surrounding the bank’s future.

However, NYCB has taken steps to address the situation, issuing statements to reassure stakeholders and fortify their position. The search for new leadership and the release of unaudited financial information demonstrate the bank’s commitment to rebuilding confidence in its operations. It remains to be seen how these developments will unfold and what actions NYCB will take to address the challenges it faces.

As this story continues to develop, it’s important to stay informed and monitor the latest updates on NYCB’s situation. The impact of these events reaches beyond the financial sector and can have broader implications for the communities and individuals connected to the bank. We will continue to provide updates as the story progresses.

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