NYCB’s stressed multifamily loans cloud its outlook, Moody’s says in downgrade

Moody’s downgraded all long-term and some short-term ratings and assessments of New York Community Bancorp
NYCB,
-25.89%
further into junk territory, after the bank said it had “material weaknesses” in its accounting protocols and said it would delay its financial filings.

Flagstar Bank, NA, the operating business of holding company New York Community Bancorp, was downgraded to Ba3 from Baa2, lowering it from investment-grade to speculative-grade, or junk, status.

Moody’s said the company’s Feb. 29 disclosures “are further signals…that it is undergoing substantial changes in governance, oversight, risk management and internal controls” during a “particularly challenging” operating environment which includes risks in its loan portfolio.

The bank’s challenges may also “negatively affect” confidence among depositors and investors, Moody’s said.

“Moody’s believes that NYCB may have to further increase its provisions for credit losses over the next two years because of credit risk on its office loans, and that there is substantial repricing risk on its multifamily loans,” analysts said.

The bank also faces higher funding costs on its interest-bearing liabilities due to higher-for-longer interest rates expected in 2024.

The bank now faces $3.4 billion of multifamily loans maturing in 2024 and $5.1 billion of loans maturing in 2025, Moody’s said. It has about $18.3 billion in multifamily loans to rent-regulated apartments on its balance sheet.

The risk-weights on seasoned multifamily loans could rise to 150% from 50% if the loans become non-performing, Moody’s said.

A non-performing loan (NPL) is defined as borrowed money whose scheduled payments have not been made by the debtor for a period of time, usually 90 or 180 days.

Those bonds were issued in 2018 in the amount of $300 million.

Also read: New York Community Bancorp ‘is on its own’ to work out accounting mess, analyst says