Credit ratings have been downgraded one after another! What's even more alarming is that the "thunder" at New York Community Bank may not have stopped yet.

Zhitong App learned that last Friday, Fitch Ratings downgraded the credit rating of New York Community Bancorp, which took over Signature Bank during the U.S. banking crisis last year, to junk status. Moody's Investors Service, another international rating agency that downgraded New York Community Bancorp's credit rating to junk status last month, further lowered the credit rating. Just a day before the two major international rating agencies downgraded the bank's rating, this small and medium-sized bank focusing on commercial real estate revealed "significant deficiencies" in its tracking of loan risks.

In a statement released last Friday, Fitch stated that it downgraded New York Community Bancorp's long-term issuer default rating from "BBB-" to "BB+", which is one level below investment grade, to junk status. Moody's, which downgraded the bank's rating to junk status last month, further lowered New York Community Bancorp's issuer credit rating within the junk rating, from "Ba2" to "B3".

Fitch, the international rating agency, stated that the discovery of significant weaknesses in the bank prompted a reevaluation of New York Community Bancorp's actual control over reserve adequacy, especially its high-risk exposure in commercial real estate.

Fitch stated that the decision to downgrade the credit rating was based on a reassessment of New York Community Bancorp's risk profile, following the bank's announcement of significant deficiencies in internal controls, particularly regarding internal loan reviews. The agency added that the outlook for the bank's rating is "negative".

In addition, rating agencies including Morningstar DBRS have downgraded the troubled New York Community Bancorp, mainly due to its "excessive" exposure to commercial real estate (CRE). The high level of bad debts in the U.S. banking industry and the high risks in the commercial real estate sector in a high-interest rate environment are facts that investors can see.

Since the beginning of this year, New York Community Bancorp has been in a continuous storm of negative news.

Ever since the start of 2024, New York Community Bancorp, which took over Signature Bank during the U.S. banking crisis last year, has been facing a series of setbacks. At the end of January, New York Community Bancorp's decision to cut dividends and reserve provisions led to a record-breaking drop in its stock price by nearly 38%, dragging down the KBW Regional Banking Index to its worst trading day since Silicon Valley Bank's rapid collapse in March last year.

According to financial report data, the main reason for New York Community Bancorp's quarterly loss was the bank's loan loss provisions reaching $552 million, ten times higher than analysts' expectations and significantly exceeding the previous quarter's $62 million, indicating a deteriorating credit outlook for commercial real estate.

This concern reflects the continuous decline in the value of U.S. commercial real estate under the pressure of high interest rates, making it difficult to predict which specific loans may default. The underlying cause of this situation may be attributed to the habitual shift to remote work due to the COVID-19 pandemic and the rapid rise in interest rates to the highest level in 22 years after the Fed's rate hike cycle began, resulting in higher refinancing costs for borrowers in tight financial situations. Billionaire investor Barry Sternlicht has warned that the U.S. office market may face losses exceeding $1 trillion.

New York Community Bancorp announced last Thursday the need to strengthen loan approval reviews, once again triggering investor concerns that the bank may have significant commercial credit exposure to struggling commercial property owners, including apartment landlords in the New York Community Bancorp region. The company's stock price plummeted by 26% last Friday, despite the company's statement that it does not expect deficiencies in controls to change its credit loss provisions.

Last Thursday, the company released the latest documents revealing a $2.4 billion impairment of goodwill due to significant issues found in the loan review process. The fourth-quarter net loss was revised from $260 million to $2.71 billion, reigniting concerns about the health of small and medium-sized banks in the U.S.

In a statement, Moody's rating agency expressed, "Moody's believes that due to credit risks in its commercial loans, New York Community Bancorp may need to further increase credit loss provisions over the next two years." The agency also noted, "There is significant repricing risk in its multi-family loan portfolio." New York Community Bancorp's stock price closed at $3.55 last week, with a cumulative decline of 65% since the beginning of the year.

"The company has a strong liquidity and solid deposit base," said the newly appointed CEO Alessandro DiNello in a statement earlier last Friday. "I am confident that we will firmly execute our transformation plan to create more value for shareholders."

The commercial real estate crisis may continue until 2025, and New York Community Bancorp's tough times are far from over.

Concerns about the health of small and medium-sized banks in the United States have reignited in 2024. In January, there were 635 foreclosures on commercial real estate, a 17% increase compared to the previous quarter. The large number of foreclosures in commercial real estate has put significant liquidity pressure on regional banks associated with office buildings, potentially affecting the entire U.S. financial industry.

According to Trepp's statistics, by the end of 2025, the U.S. banking industry will face over $560 billion in commercial real estate debt due, accounting for more than half of the total real estate debt due at that time. Particularly for small regional banks like New York Community Bancorp, which have significant exposure to commercial real estate, they may face greater negative impacts than larger commercial banks because they lack large credit card portfolios or investment banking businesses to shield themselves from the impact.

While the issues in the U.S. commercial real estate market, especially in office buildings, have been evident in the nearly four years since the outbreak of the COVID-19 pandemic, the market has been somewhat unstable. Due to uncertainty about the value of properties, large transaction volumes have significantly decreased. Now, with the need to address impending debt issues and the prospect of a Fed rate cut, more transactions are expected to occur, providing a clearer picture of how much values have actually declined. David Aviram, the head of Maverick Real Estate Partners, stated, "Compared to traditional banks, New York Community Bancorp is a much more conservative bank." "However, due to a larger proportion of loans secured by stable multi-family residential properties in New York Community Bancorp's commercial real estate portfolio compared to its peers, the changes in rent laws in 2019 may have a greater impact."

Aviram also mentioned, "So far, the percentage of delinquent loans reported by banks is just the tip of the iceberg compared to the defaults expected in 2024 and 2025." "Banks still face these significant risks, and the anticipated interest rate cuts next year are unlikely to resolve the commercial real estate issues they are facing."