Fitch cuts NYCB's debt rating deeper into junk territory but says outlook remains stable

By Steve Gelsi

Analyst cites 'weaker earnings and profitability profile in addition to execution risk'

Fitch Ratings has cut its long-term issuer default ratings for New York Community Bancorp Inc. deeper into junk territory but said the bank's downside risks have stabilized.

Fitch now rates NYCB's (NYCB) debt as BB, down from its earlier rating of BB+ on the heels of the bank's narrower-than-expected first-quarter loss last week. Any classification below BBB- is classified as junk, or non-investment grade under Fitch's ratings system.

Also read: Potential failure of NYCB is 'squarely off the table (for the time being),' analyst says

NYCB's stock rebounded since then with a rise of nearly 39% in the past week to a closing price of $3.67 on Tuesday.

On Wednesday, NYCB's stock fell by 2.9%.

Fitch said the bank's debt remains stable, however, because " downside risks over the rating horizon have stabilized."

The downgrade "reflects Fitch's assessment that NYCB has a weaker earnings and profitability profile in addition to execution risk associated with its restructuring plan," Fitch analyst Anthony Di Tomasso said.

While NYCB's first-quarter results provided clarity about profitability expectations, it also met expectations of higher loan loss provisions ($315 million during the quarter), elevated funding costs and elevated nonrecurring expenses expected to result in losses in 2024.

Normal run-rate profitability is not likely to be achieved until 2026, the company said.

"While management has outlined a credible plan to restructure the bank, improvement of NYCB's credit profile will largely depend on its execution, particularly against a backdrop of greater economic uncertainty," Di Tomasso said.

Another headwind is the pressure to retain talent at the bank, as well as the bank's commercial real estate portfolio.

"Fitch anticipates that realized losses will unfold over time, and in total, are likely to exceed those of peers," Di Tomasso said.

The bank has been facing stress in its loans to rent-regulated buildings in New York City due to depressed values in the sector.

On Wednesday, NYCB's stock fell by 2.9%.

-Steve Gelsi

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05-08-24 1128ET

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