Key Takeaways
New York Community Bancorp defended itself late Tuesday after Moody's downgraded the bank's credit rating. The high-interest rate environment is putting pressure on the entire commercial real estate sector, which in turn is straining the regional banks that lend to much of the market. Experts and regulators said the bank may be in a unique situation because of its concentration of lending in rent-regulated multifamily buildings.
Despite broader pressures in the commercial real estate market, experts and regulators believe problems like that of New York Community Bancorp Inc. (NYCB) may be isolated.
Moody's on Tuesday downgraded New York Community Bank's credit rating because of its investments in rent-regulated apartment complexes. The bank responded by releasing information about its deposits and liquidity and said the downgrade would not have a significant impact.
In a move reminiscent of regional banks' woes last spring, New York Community Bank released deposit and liquidity figures after its Moody's downgrade, which show whether banks can meet their promises to depositors. The bank is selling mortgages starting Wednesday to shore up its liquidity, according to Bloomberg.
New York Community Bank Deposits and Liquidity
Total deposits: $83 billion increase from end-2023 Total insured and secured deposits: 72% of total deposits Total uninsured deposits: $22.9 billion Total liquidity: $37.3 billion Cash on balance sheet: $17 billion
Experts have recently pointed to New York Community Bank's unique makeup as an exception, saying it finds itself in a unique situation at a time when the commercial real estate industry is at an inflection point.
“At this point it appears to be more of an idiosyncratic phenomenon within individual banks with individual exposures,” Minneapolis Fed President Neel Kashkari said in an interview with CNBC on Wednesday. “It doesn't appear to be systemic.”
Regulators said they are keeping a close eye on commercial real estate as delinquencies rise, putting pressure on banks such as New York Community Bank and raising concerns that other regional banks will have trouble collecting on commercial loans.
Treasury Secretary Janet Yellen told the House Financial Services Committee on Tuesday that the rising interest rate environment is putting a strain on property owners because many commercial real estate loans are coming due and need to be refinanced but are having difficulty refinancing on the same low terms.
“We are concerned, and this may cause significant stress for some institutions, but we believe it is manageable,” Yellen said.
The bank's situation may be unique because of its concentration of rent-regulated multifamily loans: Of the 35 banks tracked by Wedbush Securities, it has the highest exposure to that sector, according to analyst David Chiaverini.
“We view rent-regulated multifamily loans as a higher-risk loan category in this environment,” Chiaverini said. “Given the high interest rate environment and declining property values, lenders are less willing to extend loans of the same amount at maturity.”
Rent-regulated multifamily loans make up 22% of New York Community Bank's total lending, according to Wedbush.
A sell-off in New York commercial bank shares due to perceived risks in its commercial real estate exposure and increased regulatory scrutiny will weigh on the bank's earnings and investor sentiment going forward, Bank of America analysts said Wednesday.
“While we believe banks have sufficient liquidity to weather the current period, elevated headline risk could affect customer behavior and lead to larger-than-expected increases in deposit costs,” Bank of America said in a research note.
NYCB shares, which lost nearly a quarter of their value on Tuesday, were down about 8% as of around 12:20 p.m. ET on Wednesday.
Avery Koop and Terry Lane contributed to this story.