Moody’s Investors Service downgraded New York Community Bancorp’s (NYCB) credit rating to junk status, according to Bloomberg.
This happened just days after the regional bank shocked its shareholders by reducing dividends and accumulating reserves to manage problematic loans associated with commercial real estate.
Moody’s, in its Tuesday report, stated that the bank is grappling with diverse financial risks and governance issues.
Consequently, it downgraded the bank’s long-term issuer rating to Ba2, two levels below investment grade.
Moody’s also indicated the possibility of a further downgrade if the situation worsens.
The bank’s stock plummeted around 60 per cent, hitting its lowest since 1997, following its announcement to cut dividends and increase reserves in anticipation of stricter capital regulations after acquisitions that pushed its assets over $100 billion.
Bloomberg reported that these steps were taken due to increasing covert pressure from the Office of the Comptroller of the Currency (OOC).
The report also mentioned the recent departure of two executives responsible for risk and auditing.
Moody’s states that a bank’s risk and auditing leadership serve as its secondary and tertiary defence lines, as control functions with a deep understanding of a bank’s risks are crucial to its creditworthiness.
Shortly after the downgrade, NYCB announced that it didn’t foresee any significant impact on its contractual agreements. The bank also mentioned that its deposit ratings from Moody’s and other agencies continue to be investment-grade.
