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Further Moody’s downgrades could put some NYCB deposits at risk

A sign above a New York Community Bank branch in Yonkers, New York, was photographed on January 31, 2024.

Mike Seeger | Reuters

regional financial company new york community bank One of the company’s key ratings has been downgraded for the second time in a month, meaning it may have to pay extra to keep deposits alive.

Late Friday, Moody’s Investors Service downgraded the deposit rating of NYCB’s major banking subsidiary by four notches, from Baa2 to Ba3, three notches below investment grade.Following that two notch cut Announced by Moody’s in early February.

The downgrade could result in contractual obligations from NYCB’s corporate clients to maintain the bank’s investment-grade deposit rating, according to analysts who track the company. Consumer deposits with FDIC-insured banks are covered Up to $250,000.

NYCB noticed that its stock price was falling. free fall The situation started a month ago, when the company reported an unexpected fourth-quarter loss and an increase in its allowance for loan losses. Last week, the bank’s new management team announcedmaterial weaknessThe bank’s stock price has fallen 73% this year, including a 23% drop on Monday, and is now trading at less than $3 a share.

A key concern for analysts and investors is NYCB’s deposit status. Last month, the bank Said As of February 5, it had $83 billion in deposits, 72% of which were insured or collateralized. However, this figure was from the day before Moody’s began downgrading the bank. possible flight amount deposited since then.

Moody’s rating downgrade could affect funds in at least two areas: the “banking-as-a-service” business, which had $7.8 billion in deposits as of May regulators; filingand a mortgage escrow unit with deposits of $6 billion to $8 billion.

“There is a potential risk to deposit repayments in the event of a downgrade,” Citigroup analyst Keith Horowitz said in a Feb. 4 research note.

NYCB executives told Horowitz that the bank’s deposit rating, which Moody’s pegged at A3 at the time, was at risk unless it was lowered by four notches. Since the release of this memo, it has fallen six notches.

During a conference call on February 7, NYCB Chief Financial Officer said: John Pinto It confirmed that the bank’s mortgage escrow business must maintain investment-grade status and said the unit’s deposit levels fluctuate between $6 billion and $8 billion.

KBW analyst Chris McGratty said of Moody’s downgrade: “If you have a contract with these depositors that it has to be investment grade, that would theoretically be a triggering event.” .

NYCB did not immediately respond to CNBC’s calls and emails seeking comment.

It is not clear what the contract requires NYCB to do if it violates its investment-grade status, or whether a downgrade by multiple rating agencies is required to trigger the terms of the contract. .For example, Fitch Ratings has updated NYCB’s credit rating to junk The bank last week kept its uninsured long-term deposits at BBB-minus, one notch higher than junk deposits.

To replace deposits, NYCB could raise brokered deposits, issue new bonds, or borrow from Federal Reserve facilities, all of which would likely have higher costs. McGratty said it would take a while.

“They will do whatever it takes to keep deposits in-house, but the cost of funding their balance sheets could become prohibitive as this scenario plays out,” McGratty said. said.

Don’t miss the next story from CNBC PRO.

Summarize this content to 100 words A sign above a New York Community Bank branch in Yonkers, New York, was photographed on January 31, 2024.Mike Seeger | Reutersregional financial company new york community bank One of the company’s key ratings has been downgraded for the second time in a month, meaning it may have to pay extra to keep deposits alive.Late Friday, Moody’s Investors Service downgraded the deposit rating of NYCB’s major banking subsidiary by four notches, from Baa2 to Ba3, three notches below investment grade.Following that two notch cut Announced by Moody’s in early February.The downgrade could result in contractual obligations from NYCB’s corporate clients to maintain the bank’s investment-grade deposit rating, according to analysts who track the company. Consumer deposits with FDIC-insured banks are covered Up to $250,000.NYCB noticed that its stock price was falling. free fall The situation started a month ago, when the company reported an unexpected fourth-quarter loss and an increase in its allowance for loan losses. Last week, the bank’s new management team announcedmaterial weaknessThe bank’s stock price has fallen 73% this year, including a 23% drop on Monday, and is now trading at less than $3 a share.A key concern for analysts and investors is NYCB’s deposit status. Last month, the bank Said As of February 5, it had $83 billion in deposits, 72% of which were insured or collateralized. However, this figure was from the day before Moody’s began downgrading the bank. possible flight amount deposited since then.Moody’s rating downgrade could affect funds in at least two areas: the “banking-as-a-service” business, which had $7.8 billion in deposits as of May regulators; filingand a mortgage escrow unit with deposits of $6 billion to $8 billion.”There is a potential risk to deposit repayments in the event of a downgrade,” Citigroup analyst Keith Horowitz said in a Feb. 4 research note.NYCB executives told Horowitz that the bank’s deposit rating, which Moody’s pegged at A3 at the time, was at risk unless it was lowered by four notches. Since the release of this memo, it has fallen six notches.During a conference call on February 7, NYCB Chief Financial Officer said: John Pinto It confirmed that the bank’s mortgage escrow business must maintain investment-grade status and said the unit’s deposit levels fluctuate between $6 billion and $8 billion.KBW analyst Chris McGratty said of Moody’s downgrade: “If you have a contract with these depositors that it has to be investment grade, that would theoretically be a triggering event.” .NYCB did not immediately respond to CNBC’s calls and emails seeking comment.It is not clear what the contract requires NYCB to do if it violates its investment-grade status, or whether a downgrade by multiple rating agencies is required to trigger the terms of the contract. .For example, Fitch Ratings has updated NYCB’s credit rating to junk The bank last week kept its uninsured long-term deposits at BBB-minus, one notch higher than junk deposits.To replace deposits, NYCB could raise brokered deposits, issue new bonds, or borrow from Federal Reserve facilities, all of which would likely have higher costs. McGratty said it would take a while.”They will do whatever it takes to keep deposits in-house, but the cost of funding their balance sheets could become prohibitive as this scenario plays out,” McGratty said. said.Don’t miss the next story from CNBC PRO.
https://www.cnbc.com/2024/03/04/some-nycb-deposits-may-be-at-risk-after-another-moodys-downgrade.html Further Moody’s downgrades could put some NYCB deposits at risk

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