Stock of New York Community Bancorp Plunges as Moody’s Downgrades Ratings
Stock Plummets Amid Moody’s Downgrade
Shares of New York Community Bancorp (NYCB) took a nosedive, dropping by 22% on Tuesday following the lender’s unexpected quarterly loss. Moody’s also downgraded the bank’s long-term debt ratings to junk status, adding to the sell-off frenzy.
Concerns Over Commercial Real Estate
The stock closed at $4.20, signaling a potential halving of its value at current levels. The continued sell-off has raised concerns about the health of the industry, particularly its exposure to the struggling commercial real estate (CRE) sector.
Moody’s Downgrades NYCB’s Ratings
Moody’s downgraded all of NYCB’s long-term ratings from Baa3 to Ba2, a move considered a junk rating. The ratings agency cited NYCB’s historical commercial real estate lending and significant losses on New York office and multifamily properties as potential causes for concern.
NYCB’s Response to Downgrade
Despite the downgrade, NYCB’s CEO, Thomas Cangemi, reassured that the bank’s deposit ratings remain investment grade. He also highlighted the bank’s efforts to bring in new leadership with significant bank experience to navigate the current challenges.
Impact on NYCB’s Financials
As of February 5, NYCB held about $17 billion in cash on its balance sheet, with total deposits rising to about $83 billion. However, concerns about the state of the CRE sector continue to weigh on the bank’s performance.
Regulatory Scrutiny and Legal Battles
NYCB’s assets surpassed $100 billion after the acquisition of Signature Bank, subjecting it to stricter regulatory requirements. The bank also faced a proposed class action lawsuit from shareholders, alleging concealment of deteriorating loan portfolio.
Options Market Reaction
The downturn in NYCB’s stock drove heightened activity in the options market, with put contracts outnumbering calls nearly 5-to-1. The bank’s 30-day implied volatility rose to 170%, reflecting increased market uncertainty.
Short Sellers Profit Amid Slide
Short sellers have made approximately $159 million in paper profits on NYCB since its earnings report, capitalizing on the stock’s decline. The bank’s stock price slump has also drawn attention to the broader regional banking sector.
Market Dynamics and Future Outlook
The KBW Regional Banking index dropped around 1.4% on Tuesday, reflecting broader concerns about the industry’s stability. The ongoing challenges faced by NYCB serve as a reminder of the fragility of the current economic landscape.
