(Bloomberg) — New York Community Bancorp’s credit grade was cut to junk by Moody’s Investors Service less than a week after the regional lender alarmed shareholders by slashing payouts and stockpiling reserves to cover troubled loans tied to commercial real estate.

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The bank is facing “multifaceted” financial risks and governance challenges, Moody’s wrote in a report Tuesday, lowering the company’s long-term issuer rating two notches below investment grade to Ba2. The ratings firm said it could go further if conditions deteriorate.

The stock tumbled about 60% to the lowest level since 1997, after the bank announced plans last week to slash dividends and beef up reserves to prepare for stiffer capital rules, following acquisitions that catapulted its assets beyond $100 billion. The measures followed mounting behind-the-scenes pressure from the Office of the Comptroller of the Currency, Bloomberg reported late Monday, noting that two executives overseeing risk and auditing had left in recent months.

Leadership of risk and auditing functions are a bank’s “second and third lines of defense,” Moody’s wrote. “In Moody’s view, control functions with strong knowledge of a bank’s risks are key to a bank’s credit strength.”

Long-simmering concerns that a slump in commercial property values could hurt US regional banks has intensified in recent days as lenders from Frankfurt to Tokyo signal strains in their own portfolios. Behind it all is a pandemic-induced shift to remote work, stricter rules for raising apartment rents in some markets and a run-up in interest rates that make it more expensive for strained borrowers to refinance.

Moody’s plans to focus on the outlook for NYCB’s commercial real estate portfolio, earnings, capitalization and use of wholesale funding as it weighs whether to cut grades again. And it will further assess governance, including risk and balance-sheet management.

The bank could also be downgraded if its credit performance weakens, use of market funding expands in relation to deposit funding, it fails to bolster capital or experiences a loss of depositor confidence that undermines liquidity, Moody’s said.

New York Community Bancorp swelled rapidly in the past 18 months through a pair of acquisitions, lifting total assets above the $100 billion threshold that brings more regulatory scrutiny. It may need to sell $4 billion to $6 billion of additional debt over time to meet new regional bank debt requirements, according to analysts led by Arnold Kakuda at Bloomberg Intelligence. A downgrade to junk could make that harder.

‘Fallen Angels’

Fitch Ratings ranks New York Community Bancorp at BBB-, the bottom investment-grade rating, after lowering it one level last week. It has a negative outlook. S&P Global Ratings no longer rates the company after withdrawing its rating at the bank’s request in 2023.

Companies cut to junk by two credit graders are known as “fallen angels” and have their debt moved to high-yield indexes, which can limit certain money managers from holding the securities.

The stock has dropped by double digits in four of the last five trading days.

The decline presents an opportunity for investors with an “appetite for a discounted name and story with turnaround potential,” Piper Sandler analyst Mark Fitzgibbon wrote in a note to clients. Fitzgibbon said he doesn’t believe the bank is seeing meaningful deposit pressure, with the company indicating to him it has been “business as usual.”

Regional bank stocks more broadly have come under pressure following NYCB’s results, given concerns about real estate exposure, leaving the KBW Regional Banking Index down about 12% this year. On Tuesday, Valley National Bancorp was the second-worst performer in the index, after NYCB, slumping 8%.

–With assistance from Bre Bradham and Boris Korby.

(Updates with additional commentary from Moody’s, background on firm and market from second paragraph.)

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