Moody's downgrades bank's credit rating to junk; stocks fall

Community Bank of New York'Shares of s rose early Wednesday after it promoted its president to help stabilize the company's operations.

NYCB shares rose 3.7%, reversing earlier losses of about 10% after Moody's Investors Service downgraded the bank in premarket trading. This followed a tough series of trading sessions that shaved almost 60% off the company's market value.

The bank appointed Alessandro DiNello as executive chairman with immediate effect, promoting him from non-executive chairman, to work with CEO Thomas Cangemi “to improve all aspects of the bank's operations,” according to a statement issued at 7:45 a.m.

The regional bank has been in free fall since reporting a surprise fourth-quarter loss last week, along with mounting losses in commercial real estate and the need to cut its dividend by 71% to shore up capital levels. The measures revived concerns that some small and medium-sized banks could be hit by drops in profitability and losses on real estate.

NYCB's announcement addresses management concerns that arose after last week's earnings report. The Hicksville, New York-based lender amassed more than $100 billion in assets after a pair of acquisitions (Flagstar Bank in late 2022 and Signature Bank assets in March 2023), but then appeared to be taken by surprise at increased regulatory scrutiny after crossing that. limit.

DiNello, who was CEO of Flagstar Bank since 2013, joined NYCB after the acquisition closed.

Late Tuesday afternoon, Moody's released a report stating that NYCB faced “multifaceted financial, risk management and governance challenges.”

It downgraded all of the bank's long-term ratings to Ba2 from junk-grade Baa3, partly over concerns about turnover in the firm's risk management leaders, and warned that assessments remain under review for further downgrade.

“The downgrade reflects Moody's view that NYCB faces high governance risks due to its transition regarding leadership of its second and third lines of defense, the bank's risk and audit functions, at a crucial time,” Moody's wrote. . “In Moody's view, control functions with a strong understanding of a bank's risks are key to a bank's credit strength.”

The bank is looking for a chief risk officer and a chief audit executive and has managers serving on an interim basis in those positions, NYCB said in a late-night statement made hours after Moody's report. Former executives in those roles left the bank in the months leading up to its disastrous earnings report last week, Bloomberg reported.

NYCB also said the downgrade is not expected to have a “material impact on our contractual arrangements.”

The bank sought to boost confidence by issuing unaudited financial information as of Monday, saying that 72% of total deposits were insured or collateralized, and that it had ample liquidity to cover uninsured deposits.

During last year's regional banking crisis, institutions such as Silicon Valley Bank and First Republic ran out of deposits after customers withdrew cash from banks.

“We took decisive action to strengthen our balance sheet and strengthen our risk management processes during the fourth quarter,” Cangemi said in the statement. “Our actions are an investment in improving a risk management framework commensurate with the size and complexity of our bank.”

In a Wednesday morning phone call with investors, Dinello acknowledged the severity of the situation in which NYCB suddenly found itself.

“We've obviously been dealing with a very serious situation since our fourth quarter earnings release,” Dinello said. “What I hope to do this morning is instill some confidence that this bank is still strong and will get back on the right path.”

NYCB has seen “virtually no deposit outflows” from retail branches, he said.