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Rating Action:

Moody's downgrades New York Community Bancorp's long-term issuer and subordinate ratings to Baa3 from Baa2; outlook stable

04 Nov 2019

New York, November 04, 2019 -- Moody's Investors Service ("Moody's") has downgraded the long-term issuer and subordinate debt ratings of New York Community Bancorp, Inc. (NYCB) to Baa3 from Baa2. It also downgraded the long- and short-term deposit ratings of its bank subsidiary New York Community Bank to A3/Prime-2 from A2/Prime-1. This follows the downgrade of the bank's standalone baseline credit assessment (BCA) and adjusted BCA to baa2 from baa1. The ratings outlook is stable. A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

The ratings downgrade was driven by Moody's lower assessment of the company's capitalization, which primarily resulted from the execution of its share repurchase program that was announced in October of 2018. The company has completed about three-quarters of the $300 million repurchase program through the third quarter of 2019. As of 30 September 2019, the company's common equity Tier 1 capital ratio was 10.15%, compared to 11.07% a year earlier. In addition to the capital distributions, the firm's regulatory capitalization has declined due to asset and loan growth, which were both approximately 3% over the last year. During this period, NYCB's modest earnings have not sufficiently offset the regulatory capital reduction. The bank's lower equity base has also increased NYCB's concentration in commercial real estate (CRE) to over 10 times its tangible common equity (TCE) as of 30 September 2019 from over 9 times TCE, a year earlier, further widening the gap with its US rated peers.

Since the announcement of the share repurchase program in October 2018, the New York State rent regulation laws were substantially revised in June of 2019. Moody's expects that these revisions could slow investment in multifamily properties in NYCB's market area, leading to lower origination volumes and slower revenue growth. This, in turn, could offset some of NYCB's profitability benefit from the recent declines in interest rates, given its liability-sensitive balance sheet and its strong operational efficiency. Its return on average assets for the first nine months of 2019 was 0.75%, compared to 0.86% for the same period of 2018, a much lower level than the average for rated US peers of 1.2%. Moody's expects that the company's loan growth, even if muted by the change in law, and profitability will continue to pressure capitalization over the next 12-18 months.

Moody's noted that NYCB's consistent and conservative underwriting is a key credit strength. The company remains focused on mortgage loans collateralized by multifamily, rent-regulated properties, primarily in the New York metropolitan area. Multifamily mortgages accounted for approximately 74% of the company's loan book as of 30 September 2019. NYCB has historically reported very low credit losses through the economic cycle on its loan portfolio. NYCB performs well in stress scenarios, as measure by its decline in capitalization, but its capital cushion against unexpected losses has significantly reduced, driving the ratings downgrade.

Moody's has some governance concerns with regard to CEO succession at NYCB, but it does not apply any additional qualitative consideration to its assessment of the bank's standalone credit profile. Although a succession plan has been developed, the long tenure and strong presence of the CEO heightens the risk that changes in management could have an adverse effect on the strategic direction and risk profile of the bank.

Factors that Could Lead to an Upgrade

The company's standalone BCA and its ratings could be upgraded if it were to increase its capitalization, reduce its CRE exposure without significantly increasing its asset risk, and improve its core funding to levels comparable with similarly-rated US peers.

Factors that Could Lead to a Downgrade

Rapid growth, whether organic or through acquisition, or other actions that would further weaken NYCB's capitalization would pressure its BCA and ratings. Evidence that NYCB's underwriting standards are loosening would also be negative for the BCA and ratings.

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

New York Community Bancorp, Inc. is a bank holding company headquartered in Westbury, New York and reported $52.5 billion of consolidated assets as of 30 September 2019.

Affirmations:

..Issuer: New York Community Bank

.... ST Counterparty Risk Assessment, Affirmed P-2(cr)

.... ST Counterparty Risk Rating, Affirmed P-2

Downgrades:

..Issuer: New York Community Bancorp, Inc.

.... Issuer Rating, Downgraded to Baa3, Stable from Baa2, Negative

.... Pref. Shelf non-cumulative, Downgraded to (P)Ba2 from (P)Ba1

.... Senior Unsecured Shelf, Downgraded to (P)Baa3 from (P)Baa2

.... Subordinate Shelf, Downgraded to (P)Baa3 from (P)Baa2

.... Pref. Stock Non-cumulative, Downgraded to Ba2 (hyb) from Ba1 (hyb)

.... Subordinate Regular Bond/Debenture, Downgraded to Baa3 from Baa2

..Issuer: New York Community Bank

.... Adjusted Baseline Credit Assessment, Downgraded to baa2 from baa1

.... Baseline Credit Assessment, Downgraded to baa2 from baa1

.... LT Counterparty Risk Assessment, Downgraded to Baa1(cr) from A3(cr)

.... LT Counterparty Risk Rating, Downgraded to Baa2 from Baa1

.... ST Bank Deposit Rating, Downgraded to P-2 from P-1

.... LT Bank Deposit Rating, Downgraded to A3, Stable from A2, Negative

..Issuer: New York Community Capital Trust V

.... Backed Pref. Stock, Downgraded to Ba1 (hyb) from Baa3 (hyb)

Outlook Actions:

..Issuer: New York Community Bancorp, Inc.

....Outlook, Changed To Stable From Negative

..Issuer: New York Community Bank

....Outlook, Changed To Stable From Negative

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Rita Sahu, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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