Key takeaways
- New York Community Bancorp Inc. defended itself Tuesday night after Moody’s downgraded the bank’s credit rating.
- The high interest rate environment has put pressure on the entire commercial real estate sector, which in turn has put pressure on the 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 multifamily housing.
Despite widespread pressures in the commercial real estate market, experts and regulators believe that problems like those at New York Community Bancorp Inc. (NYCB) could be isolated.
Moody’s downgraded New York Community Bank’s credit rating on Tuesday, citing the lender’s exposure to rent-regulated multifamily properties. The bank, in turn, published information on deposits and liquidity and said the downgrade would not have a material effect.
In an echo of regional banks’ struggles last spring, New York Community Bank released figures on deposits and liquidity after Moody’s downgrade. Deposit and liquidity figures show whether a bank can meet its commitments to depositors. The bank is looking to shore up liquidity by selling residential mortgages starting Wednesday, according to Bloomberg.
A look at New York Community Bank’s deposits and liquidity
- Total deposits: $83 billion, compared to the end of 2023
- Total insured and collateralized deposits: 72% of total deposits
- Total uninsured deposits: $22.9 billion
- Total liquidity: $37.3 billion
- Cash retained on the balance sheet: $17.0 billion
In recent days, experts have pointed to New York Community Bank’s unique makeup as an outlier, saying that while the commercial real estate industry is at an inflection point, the bank is in a unique situation.
“Right now, it appears to be more idiosyncratic within individual banks with individual exposure,” Minneapolis Federal Reserve 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 rising, putting pressure on banks like New York Community Bank and raising concerns that other regional banks will struggle to recover their commercial loans.
Treasury Secretary Janet Yellen told the House Financial Services Committee on Tuesday that the higher interest rate environment is putting pressure on homeowners because many commercial real estate loans are coming due and need to be refinanced, but they probably can’t get the same low terms.
“I’m concerned. I think it’s manageable, although there may be some institutions that are quite stressed by this issue,” Yellen said.
New York Community Bank’s situation may be unique because it has a high concentration of rent-regulated multifamily loans. Of 35 banks tracked 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 multifamily loans as a subprime lending category in this environment,” Chiaverini said. “Lenders are not willing to make the same loan amount at maturity as property values have declined in a higher rate environment.”
Rent-regulated multifamily loans account for 22% of all New York Community Bank loans, according to Wedbush.
Bank of America analysts said Wednesday that the selloff in NYCB shares due to perceived risks of exposure to commercial real estate, as well as increased scrutiny from regulators, will weigh on the bank’s earnings and the investor confidence in the future.
“While we believe the bank has sufficient liquidity to weather the current period… the elevated overall risk has the potential to influence customer behavior, leading to a larger than expected increase in the cost of deposits,” said B of A in a research note.
NYCB shares, which lost nearly a quarter of their value on Tuesday, fell about 8% around 12:20 p.m. ET on Wednesday.
Avery Koop and Terry Lane contributed to this story.
