Troubled lender NYCB seeks to reassure investors after 60% share plunge, Moody's credit downgrade

New York Community Bancorp (NYCB) is trying to reassure investors about its deposits, liquidity and management following a week-long decline in the company's stock and a decision by Moody's to cut the bank's credit rating to junk.

The $116 billion commercial real estate lender issued a press release Tuesday night shortly before midnight ET that total deposits have risen since the end of 2023 following the Moody's downgrade and that its total liquidity exceeds the level of uninsured deposits by $37.3 billion.

“Despite Moody's downgrade, our deposit ratings from Moody's, Fitch and DPRS remain investment grade,” CEO Thomas Congemi said in the statement. “The Moody's downgrade is not expected to have a significant impact on our contractual arrangements.”

The crisis deepens every day as shares of one of the country's top 30 banks tumble, wiping billions in market value.

Its stock has fallen nearly 60% since last Wednesday, prompting Wall Street to cut its dividend and report a net quarterly loss of $252 million. The price rebounded following the bank's report on Tuesday night, and the stock was up more than 12% in pre-market trading on Wednesday.

In a separate announcement, the company said Wednesday it appointed Alessandro Dinello as executive chairman. DiNello was previously CEO of Flagstar Bank, which was acquired by NYCB in late 2022.

The turmoil at NYCB is also dragging down the value of other regional bank stocks and fueling fresh concerns about the industry's vulnerability to suddenly lower-value office buildings and apartments due to higher interest rates and job shifts.

New analyst demotions and revelations of executive departures have added momentum to NYCB's slide this week.

See also  Twitter strips from the New York Times check mark | Social media news

One that Moody's highlighted was the departure of two key New York Community Bank executives in recent months — the bank's chief risk officer and its chief audit officer. Bloomberg announced those departures on Monday.

“We are engaged in an orderly process to bring in a new chief risk officer and chief audit executive with major banking experience, and we currently have qualified personnel filling those positions on an interim basis,” Conjemi acknowledged the departures in his statement.

FILE PHOTO: A sign is seen above a New York Community Bank branch in New York on Jan. 31, 2024.

New York Community Bank branch in Yonkers, NY REUTERS/Mike Seger/File photo (REUTERS/Reuters)

How Community Bancorp of New York responded to the crisis that rocked the regional banking world in 2023 and eliminated three significant regional banks: Silicon Valley Bank, Signature Bank and First Republic.

NYCB played the role of rescuer during that crisis by picking up parts of the failed Signature Bank.

But that decision to absorb billions in loans pushed the bank past a critical asset threshold of $100 billion, subjecting the company to higher regulatory standards. Big banks in the US must set aside more capital to provide substantial buffers against future losses.

The company said this was the reason it cut its dividend in the fourth quarter and raised money set aside for loan losses. Those loan loss provisions were $552 million, higher than analyst estimates, and designed to prepare the bank for further weakness in its commercial real estate portfolio. Its deposits fell 2% between the third and fourth quarters.

“We took decisive steps in the fourth quarter to strengthen our balance sheet and strengthen our risk management processes,” Kangemi said in a statement Tuesday night. “Our actions are an investment in improving our risk management framework to match the size and complexity of our bank and provide a solid foundation going forward.”

See also  Global stocks ease after Fed officials dampen confidence

Bloomberg reported Monday that officials at the Office of the Comptroller of the Currency had pressured New York Community Bancorp to set aside more cash and cut its dividend.

Michael Hsu, acting comptroller of the Office of the Comptroller of the Currency, testifies during a House Committee on Financial Services hearing on oversight of prudential regulators on Capitol Hill, Washington, May 16, 2023.  (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)Michael Hsu, acting comptroller of the Office of the Comptroller of the Currency, testifies during a House Committee on Financial Services hearing on oversight of prudential regulators on Capitol Hill, Washington, May 16, 2023.  (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)

Michael Hsu, Acting Comptroller of the Currency Office. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images) (Mandal only via Getty Images)

The Hicksville, N.Y.-based bank has an increasing exposure to rent-controlled apartments in New York City. Those buildings account for 22% of its loans.

Moody's on Tuesday cited “multifaceted financing, risk-management and governance challenges” facing the bank for the downgrade to high-yield or “junk” status from investment grade.

Its commercial real estate exposure may create “potential trust sensitivity.” It cited “relatively high bias” in total funds and small amounts of liquid assets compared to peers.

Moody's also said NYCB “could face significant funding and liquidity pressure if it loses depositor confidence.”

Panic among depositors helped undo three of the biggest regional banks that failed last year — especially for deposits that exceeded limits insured by the Federal Deposit Insurance Corporation.

NYCB on Tuesday noted its “deposit stability,” with $83 billion in total deposits at the end of 2023, up from $81.4 billion. Its uninsured deposits were $22.9 billion, or approximately 27% of the total.

It highlighted its “substantial liquidity”, with total liquidity of $37.3 billion exceeding the size of its uninsured deposits.

Steven Alexopoulos, a mid-cap bank analyst at JP Morgan, downgraded NYCB on Wall Street and gave it a “neutral” recommendation on Wednesday morning.

“It looks like the company will focus inward, at least in the medium term. As a result, we see a prudent strategy for investors to move sideways now,” noted Alexopoulos.

See also  Max Scherzer Back Surgery for Herniated Disc

David Hollerith is a senior reporter at Yahoo Finance, covering banking, crypto and other areas of finance.

Click here for an in-depth analysis of the latest stock market news and events that move stock prices.

Read the latest financial and business news from Yahoo Finance

Leave a Reply

Your email address will not be published. Required fields are marked *