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Key Takeaways
- New York Community Bancorp Inc. defended itself late Tuesday after Moody’s downgraded the bank’s credit rating.
- The high interest rate environment has put pressure on the entire commercial real estate sector, in turn putting stress on regional banks that finance much of the market.
- Experts and regulators said the bank may be in a unique situation because it has a concentration of loans in rent-regulated, multi-family housing.
Despite broad pressures in the commercial real estate market, experts and regulators think issues like those with New York Community Bancorp Inc. (NYCB) could be isolated.
Moody’s downgraded New York Community Bank’s credit rating Tuesday, citing the lender’s exposure to rent-regulated, multi-family properties. The bank in turn released deposit and liquidity information and said the downgrade would not have a material effect.
In an echo of regional bank struggles last spring, New York Community Bank released deposits and liquidity numbers after the Moody’s downgrade. Deposit and liquidity numbers show whether a bank can honor its commitments to depositors. The bank is looking to shore up liquidity by offloading residential mortgages as of Wednesday, according to Bloomberg.
A Look at New York Community Bank’s Deposits and Liquidity
- Total deposits: $83.0 billion, up from end of 2023
- Total insured and collateralized deposits: 72% of total deposits
- Total uninsured deposits: $22.9 billion
- Total liquidity: $37.3 billion
- Cash held on balance sheet: $17.0 billion
In recent days, experts have pointed to the unique makeup of New York Community Bank as an outlier, saying that while the commercial real estate industry is at an inflection point, the bank is in a unique situation.
“As of right now, it does seem to be more idiosyncratic within individual banks with individual exposure,” Minneapolis Fed President Neel Kashkari said in an interview on CNBC Wednesday. “It doesn’t seem to be systemic.”
Regulators said they are keeping an eye on commercial real estate as delinquencies are on the rise, putting pressure on banks like New York Community Bank and raising worries that other regional banks will struggle to recoup on commercial loans.
Treasury Secretary Janet Yellen told the House Financial Services Committee Tuesday the higher interest rate environment is putting stress on property owners because many commercial real estate loans are coming due and need to be refinanced but likely cannot get the same low terms.
“I’m concerned. I believe it’s manageable although there may be some institutions that are quite stressed by this problem,” Yellen said.
New York Community Bank’s situation may be unique because it has a high concentration of rent-regulated, multi-family loans. Out of 35 banks followed by Wedbush Securities, New York Community Bank has the highest level of exposure in that category, according to analyst David Chiaverini.
“We view rent-regulated multi-family loans as a high-risk loan category in this environment,” Chiaverini said. “Lenders are unwilling to extend the same loan amount upon maturity given property values have declined in a higher rate environment.”
Rent-regulated multi-family loans account for 22% of all of New York Community Bank’s lending, according to Wedbush.
Bank of America analysts said Wednesday that the sell-off in NYCB shares owing to the perceived risks of commercial real estate exposure, as well as increased scrutiny from regulators, will weigh on the bank’s earnings and investor sentiment moving forward.
“While we believe that the bank has enough liquidity to navigate the current period… the elevated headline risk has the potential to influence customer behavior, leading to a greater than expected increase in the cost of deposits,” B of A said in a research note.
NYCB shares, which lost nearly a quarter of their value Tuesday, were down about 8% at around 12:20 p.m. ET Wednesday.
Avery Koop and Terry Lane contributed to this story.