In a significant blow to New York Community Bancorp (NYCB), Fitch Ratings downgraded its credit grade to junk status, while Moody’s Investors Service further lowered its rating, following the revelation of “material weaknesses” in the bank’s loan risk tracking processes. The announcements come amid heightened investor concern about the firm’s exposure to commercial real estate, particularly in New York City.
Credit Downgrades by Fitch and Moody’s
Fitch downgraded NYCB’s long-term issuer default rating to BB+, one level below investment grade, from BBB-, in a statement released on Friday. Similarly, Moody’s, which had already cut the bank to junk status last month, further downgraded its issuer rating to B3 from Ba2.
According to Fitch, the discovery of weaknesses in the bank’s risk tracking prompted a reassessment of its controls regarding the adequacy of loan provisioning, especially concerning its significant exposure to commercial real estate.
Investor Concerns and Stock Plunge
NYCB’s revelation of control weaknesses in loan reviews reignited investor concerns about the firm’s potential exposure to struggling commercial-property owners, particularly in the New York apartment market. Consequently, the bank’s stock plummeted by 26% on Friday, closing the week at $3.55. Year-to-date, NYCB’s stock has witnessed a staggering decline of 65%.
Moody’s expressed concerns that NYCB may need to increase its provisions for credit losses over the next two years due to credit risks associated with its office loans, as well as substantial repricing risks on its multifamily loans.
CEO’s Response and Turnaround Plan
Despite the challenging circumstances, NYCB’s newly appointed Chief Executive Officer, Alessandro DiNello, expressed confidence in the bank’s ability to navigate through the crisis. DiNello, who assumed the role this week, highlighted the company’s strong liquidity and solid deposit base, emphasizing his confidence in executing a turnaround plan to deliver increased shareholder value.
While NYCB faces significant hurdles ahead in restoring investor confidence and addressing its loan risk management shortcomings, DiNello’s leadership and the bank’s strategic initiatives will play a crucial role in steering the company through these turbulent times. As NYCB charts its path forward, investors will closely monitor its progress and response to the evolving challenges in the commercial real estate market.
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