NEW YORK COMMUNITY BANCORP, INC.
Fitch Ratings has downgraded the Long- Term Issuer Default Ratings (IDRs) for
Fitch has also affirmed the Short-Term IDRs for both entities. The Rating Outlook is Stable.
Key Rating Drivers
Today's downgrade reflects Fitch's assessment that NYCB has a weaker earnings and profitability profile in addition to execution risk associated with its restructuring plan. The Stable Outlook is based on Fitch's view that downside risks over the rating horizon have stabilized and are incorporated into the bank's current rating level.
Deteriorating Profitability: These actions follow NYCB's 1Q24 earnings announcement, which provided greater clarity on profitability expectations for 2024 and beyond. The announcement also confirmed that higher loan loss provisions, elevated funding costs and elevated nonrecurring expenses will significantly weigh on profitability resulting in a net loss for the FY 2024, with more normal run-rate profitability not likely to be achieved until 2026.
Business Profile Evolving: Recent hires have bolstered executive management with experience more consistent with a Category IV bank, which will aid the development of procedures and controls more commensurate with a bank its size. While management has outlined a credible plan to restructure the bank, improvement of NYCB's credit profile will largely depend on its execution, particularly against a backdrop of greater economic uncertainty.
More immediately, the bank is tasked with talent retention in light of the departure of a notable cohort of bankers that joined as part of the Signature transaction. To date, run off of deposits related to these departures has been modest, at approximately
Weakening Asset Quality: Growth in the loan loss reserve, in combination with notable increases in nonperforming and criticized and classified loans, indicate a broad trend of deteriorating asset quality. Having assessed the credit risks of a significant portion the CRE portfolio, the bank has greater clarity into the magnitude of potential deterioration, as evidenced by the
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A decrease in CET1 capital below 9.0% without a credible plan to increase levels above this threshold.
Ongoing personnel defections that result in large deposit attrition, or an inability to service clients.
Increased reliance on wholesale funding as exhibited by a loan-to-deposit ratio sustained above 115%.
Sustained deterioration of asset quality resulting in annualized net charge-offs in excess of current loan loss reserves.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
A return to sustained run rate profitability consistent with investment grade benchmark levels.
An improved risk profile with materially lower CRE concentration while continuing to increase capital levels.
A sustained reduction in funding costs and wholesale funding reliance.
A return to an investment grade rating would entail sustained execution of the bank's business plan, implementation of robust risk controls, a return to stable profitability, and capital levels in-line with higher rated regional bank peers.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Deposit Ratings
Government Support Rating
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Subordinated debt and other hybrid capital issued by NYCB are all notched down from its viability rating (VR) in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably.
NYCB's subordinated debt rating of 'BB--' reflects one notch of loss severity. In accordance with Fitch's bank rating criteria, this reflects alternate notching to the base case of two notches due to Fitch's view of
The preferred stock rating of 'B--' includes two notches for loss severity given the securities' deep subordination in the capital structure, and two notches for non-performance, given that the coupon of the securities is noncumulative and fully discretionary.
VR ADJUSTMENTS
The VR has been assigned below the implied VR due to the following adjustment reason: Weakest Link - Earnings and Profitability
The Asset Quality score has been assigned below the implied score due to the following adjustment reasons: Concentrations (negative), Historical and Future Metrics (negative).
The Earnings & Profitability score has been assigned below the implied score due to the following adjustment reason: Revenue Diversification (negative) and Future Metrics (negative).
The Capitalization and Leverage score has been assigned below the implied score due to the following adjustment reason: Internal Capitalization Generation and Growth (negative).
The Funding and Liquidity score has been assigned below the implied score due to the following adjustment reason: Non-Deposit Funding (negative)
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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