NYCB’s Credit Grade Is Cut to Junk by Moody’s

NYCB’s Credit Grade Is Cut to Junk by Moody’s

(Bloomberg) — New York Community Bancorp’s credit grade was cut to junk by Moody’s Investors Service less than a week after the regional lender said it was stockpiling reserves to cover souring loans tied to commercial real estate.

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The rating company downgraded New York Community Bancorp’s long-term issuer rating by two levels to Ba2, citing unanticipated losses in its New York office and multifamily properties, pressure on earnings and a decline in its capitalization. The bank’s outlook remains under review, Moody’s said in a report released Tuesday.

The downgrade comes after earnings last week that saw the bank slash its dividend and dramatically increase its provision for loan losses. Its stock has tumbled 59% since that day.

The lender’s rating could be cut again if the bank’s credit performance weakens further, use of market funding expands in relation to deposit funding, it fails to strengthen its capitalization or it experiences a loss of depositor confidence that challenges the bank’s liquidity, the report said.

New York Community Bancorp has swelled rapidly in the past 18 months through a pair of acquisitions, lifting total assets above the $100 billion threshold that brings more regulatory scrutiny. A key capital ratio for the bank is 9.1%, below peers such as KeyCorp and Regions Financial Corp. that are in that category.

It may need to sell $4 billion to $6 billion of additional debt over time to meet new regional bank debt requirements, according to analysts led by Arnold Kakuda at Bloomberg Intelligence.

The downgrade to junk might make any such sale more difficult, Kakuda has said.

Companies cut to junk by two credit graders are known as “fallen angels” and have their debt moved to high-yield indexes, which can limit certain money managers from holding the securities.

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