New York Community Bancorp’s (NYCB) credit grade was cut to junk by Fitch Ratings, and Moody’s Investors Service lowered its rating even further, a day after the commercial real estate lender said it discovered “material weaknesses” in how it tracks loan risks.
Fitch downgraded the bank’s long-term issuer default rating to “BB+,” one level below investment grade, from “BBB-,” it said in a statement on Friday.
Moody’s, which cut the bank to junk last month, lowered its issuer rating to “B3” from “Ba2.”
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Shares of NYCB plunged after longtime chief executive officer Thomas Cangemi, who has spent much of this year reassuring investors about the bank’s viability, stepped down abruptly and the bank postponed a mandatory annual financial disclosure to US regulators due to “material weakness” tied to loans.
The bank’s discovery of weaknesses “prompted a reconsideration of NYCB’s controls around adequacy of provisioning, particularly with respect to its concentrated exposure to commercial real estate,” Fitch said.
The bank’s announcement on Thursday that it needs to shore up loan reviews reignited investor concern about the firm’s potential exposure to struggling commercial property owners, including New York apartment landlords.
The stock plunged 26 percent on Friday and dragged on other regional lenders as well, even as the bank said it does not expect that control weaknesses would result in changes to its allowance for credit losses.
“Moody’s believes that NYCB may have to further increase its provisions for credit losses over the next two years because of credit risk on its office loans,” the credit rater said in a statement. It also pointed to “substantial repricing risk on its multifamily loans.”
NYCB’s stock ended the week at US$3.55, bringing its decline this year to 65 percent.
“The company has strong liquidity and a solid deposit base,” NYCB’s new CEO Alessandro DiNello said in a statement earlier on Friday. “I am confident we will execute on our turnaround plan to deliver increased shareholder value.”
Commercial banks like NYCB have been hammered by falling values in the commercial real-estate market after the COVID-19 pandemic upended work in offices for millions.
The Hicksville, New York-based bank reported a surprise loss of US$252 million for the fourth quarter of last year, including a provision for credit losses of US$552 million, much of it tied to real estate.
NYCB acquired the failed Signature Bank in mid-March last year, pushing it above US$100 billion in assets, which by law puts it under more scrutiny from regulators.
Additional reporting by AP
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