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
