Beleaguered regional bank New York Community Bancorp was dealt another blow Tuesday evening when Moody's Investors Service downgraded its credit rating to junk status.
Moody's said the downgrade was driven by concerns about the “challenges” facing New York Community Bancorp after the lender shocked Wall Street last week by revealing a surprise loss due to its exposure to the faltering commercial real estate market. This downgrade brought the bank's credit rating down two notches from its previous level, representing a significant loss of confidence in the bank's ability to repay its debt holders.
“New York Commercial Bank's historic underlying real estate lending, and significant and unexpected losses at its New York office and multifamily properties, could create potential sensitivity to confidence,” Moody's said in the report.
Shares of New York Community Bancorp fell 17% in after-hours trading Tuesday evening after a credit rating downgrade. This loss comes on top of a sharp 22% sell-off during regular trading.
A credit rating downgrade could make life more difficult for distressed companies by raising their borrowing costs further.
Moody's warned that New York Bancorp's funding and liquidity are viewed as “relatively weak” compared to its peers, noting that it relies on market-sensitive wholesale funding that can dry up during times of stress.
Moreover, Moody's noted that a third of the bank's deposits are uninsured. Last year, uninsured deposits at a Silicon Valley bank were snatched up by nervous customers, fueling a classic bank run.
“The bank may face significant funding and liquidity pressures if there is a loss of depositor confidence,” Moody's said.
New York Community Bancorp has lost more than half its market value since disclosing the unexpected loss a week ago, cutting its dividend and increasing its loan loss reserves.
Moody's is keeping New York Community Bancorp's credit rating under review, indicating the possibility of further downgrades.
New York Community Bancorp did not immediately respond to a request for comment.
Treasury Secretary Janet Yellen declined to comment specifically on New York Community Bancorp's problems during a hearing Tuesday.
However, Yellen told the House Financial Services Committee that US officials are “carefully monitoring current banking pressures” and that regulators are working with banks to help them manage the risks they face from bad mortgages.
“I'm concerned. I think it's manageable, although there may be some institutions that are very stressed by this issue,” Yellen said.
“Infuriatingly humble alcohol fanatic. Unapologetic beer practitioner. Analyst.”