Published on 8 May 2024 on Zacks via Yahoo Finance
New York Community (NYCB) Rating Downgraded to BB by Fitch
New York Community Bancorp, Inc.'s NYCB Long-Term Issuer Default Ratings (IDRs) were recently downgraded to BB from BB+ by Fitch Ratings. Nonetheless, the rating outlook remains stable.The primary reasons behind the downgrade were NYCB's weak earnings and profitability, along with execution risk associated with its restructuring plan.
Principal Factors Driving the Downgrade
Declining Profitability: The rating downgrade comes after the release of its first-quarter earnings. Results showed a significant rise in provisions, higher funding costs and elevated nonrecurring expenses, which are expected to affect near-term earnings. The result affected the profitability, leading to a net loss in the first quarter of 2024. The bank is not expected to return to a normal level of profitability until 2026.Transforming Business Profile: NYCB's recent hires show an executive team who have experience consistent with a Category IV bank. This new team will help implement procedures and controls appropriate for a bank of its size. Although management has outlined a credible restructuring plan, the improvement of NYCB's credit profile will depend heavily on successful execution, especially during the current economic volatility. In the near term, the bank needs to prioritize employee retention, given that a significant number of employees, who left the bank, joined through the Signature transaction. Until now, the outflow of deposits resulting from these employee turnovers has been relatively small at $200 million. However, the pressure to retain both talent and deposits will be a challenge in an environment of intense competition for both.Deteriorating Asset Quality: The significant rise in provisions for credit losses, along with a noticeable rise in non-performing loans indicates the weakening of asset quality.After evaluating a significant part of its commercial real estate (CRE) portfolio, the bank now has a better understanding of the magnitude of potential deterioration. This is evidenced by the $315 million set aside for provisions in the first quarter of 2024, along with the guidance of higher-than-normal provisions throughout the year. Fitch Ratings expects that these losses will gradually come to light and, in total, are likely to be higher than its competitors.