NYCB gets third credit downgrade as CRE exposure worries spill to Europe

New York Community Bancorp faced its third credit-rating cut on Thursday as defaults worries from exposure to the beleaguered U.S. commercial real estate (CRE) took its toll on lenders in Europe and Asia.

Germany's Deutsche Pfandbriefbank (PBB), whose 15% of total loans is tied to the CRE sector, termed the situation as "the greatest real estate crisis since the financial crisis".

The lender said it has enough funds to cope with a downturn in the real estate segment, even as its shares and bonds fell again.


In Asia, shares of Japan's Aozora Bank pared losses after hitting a three-year low last week as 6.6% of the bank's loan portfolio was exposed to office real estate in the United States.

Analysts have for months warned that CRE-tied borrowers are at the risk of defaulting on their loans due to high interest rates and low occupancies.

A week-long selloff in NYCB shares have soured investor sentiment and also dragged down peers, reviving fears of a global contagion stemming from the CRE sector.

THIRD DOWNGRADE

Morningstar DBRS on Thursday downgraded NYCB's credit rating due to "outsized" exposure to CRE, which the embattled lender has pledged to reduce in the coming months. Rating agencies Fitch and Moody's have already cut their ratings.

NYCB's newly appointed executive chairman Alessandro DiNello on Wednesday said that the bank will consider the sale of loans in its CRE portfolio or allow them to run off the balance sheet naturally.

If needed, the lender would also shrink its balance sheet by selling non-core assets to bolster its common equity tier 1 ratio, a key measure of financial strength.

"Liquidity appears sufficient, but given the bank failures last spring, we remain cautious given that the adverse headline risk, including a significant decline in NYCB's stock price, could eventually spook customer and depositor confidence," the ratings agency said.

NYCB shares fell 5% in the early hours of trading, erasing a chunk of gains from its last trading session.

The stock has tumbled nearly 60% since it posted a surprise fourth-quarter loss last week and cut its dividend to deal with tough regulations.