New York Community Bancorp experienced a second consecutive day of decline following rating downgrades, posing a threat to the bank's borrowing costs. The company's shares dropped by 23%, reaching the lowest level since 1996, after a 26% plunge on the previous Friday.
Fitch Ratings downgraded its assessment to non-investment grade, while Moody's Investors Service, which had already assigned a junk rating to the bank, further lowered it late on Friday. These downgrades come in the aftermath of the bank's announcement that it replaced its CEO due to "material weaknesses" in tracking loan risks.
The impact of these downgrades is seen in the increased pressure on the bank's cost of capital, according to David Chiaverini, an analyst at Wedbush Securities Inc., who holds an underperform rating on NYCB's shares.
Despite being a relative winner among regional banks in 2023, NYCB's stock has lost over two-thirds of its value this year. The decline began after the bank's January earnings report, which included a significant dividend cut and higher provisions for loan losses.
Moody's had already downgraded the credit rating to junk in February, and on Friday, the rating company further downgraded the long-term deposit rating on NYCB's lead bank, Flagstar Bank. This rating cut could lead to deposit volatility for the company's mortgage-escrow business, as noted by Bloomberg Intelligence analyst Herman Chan.
NYCB has not responded to requests for comment regarding the impact of the rating cut. In a previous update, the firm stated that its liquidity-coverage ratio for uninsured deposits was 163%.
Despite NYCB's decline, the broader bank stocks performed well, with the KBW Bank Index gaining 1.8% on Monday, while a regional gauge that includes NYCB slipped 0.6%.
