NYCB made a dramatic attempt to regain investor confidence by announcing a new CEO and a $1 billion infusion from a group that includes former Treasury Secretary Steve Mnuchin. Steve Mnuchin investing in NYCB on Wednesday came after the stock of the $114 billion lender fell as much as 45%. This was following a report that New York Community Bank (NYCB) was on the hunt for investors willing to buy stock in the company.
After the $1 billion deal was announced, the stock rebounded as much as 18%. It closed the day up more than 7%.
NYCB investors
The firms that lined up to provide the infusion include Liberty Strategic Capital, a firm founded by Mnuchin in 2021, as well as Hudson Bay Capital, Reverence Capital Partners, and Citadel Global Equities.
They and some bank managers will purchase common and convertible-preferred stock, effectively taking control of the Hicksville, N.Y.-based company.
New NYCB’s CEO
The deal also comes with a new change at the top. Former Comptroller of the Currency Joseph Otting will become NYCB’s new CEO, the third person to hold that title in just the last few weeks.
The transaction is scheduled to close by March 11 and is still subject to regulatory approvals.
Mnuchin’s NYCB investment
“In evaluating this investment, we were mindful of the bank’s credit risk profile,” Steve Mnuchin said about NYCB in a press release. His firm is expected to contribute $450 million, more than the other investors.
“With the over $1 billion of capital invested in the bank, we believe we now have sufficient capital should reserves need to be increased in the future to be consistent with or above the coverage ratio of NYCB’s large bank peers.”
Steven Mnuchin’s past acquisitions
Mnuchin, who served as Treasury secretary under President Donald Trump and previously was a Goldman Sachs partner, has past experience with another troubled bank.
In 2009, he was part of an investor group that acquired California mortgage lender IndyMac Bank for roughly $1.5 billion after it had been seized by the federal government during the 2008 financial crisis.
He and the group renamed that lender OneWest and hired Otting to help turn it around. OneWest was eventually sold to CIT Bank for more than $3 billion, and Otting later served as acting Comptroller of the Currency during the Trump administration.
Leadership changes at NYCB
This new rescue of NYCB comes with several changes to NYCB’s leadership. Otting, in becoming CEO, replaces Alessandro DiNello, who had been acting as the bank’s true boss since Feb. 6 and officially became CEO last week following the exit of longtime CEO Thomas Cangemi.
DiNello will become non-executive chair on a smaller nine-person board that includes a number of new faces, including Mnuchin, Otting, Allen Puwalski from Hudson Bay, and Milton Berlinski from Reverence Capital.
“We welcome the approach that Liberty and its partners took in its evaluation of the bank and look forward to incorporating their insights going forward,” DiNello said. It is “a positive endorsement of the turnaround that is underway and allows us to execute on our strategy from a position of strength.”
Why NYCB stock going down?
NYCB’s stock first began falling on January 31 when it surprised analysts by slashing its dividend and setting aside more for loan losses.
The turmoil intensified again last week after it disclosed the exit of Cangemi, weaknesses in its internal controls, and a tenfold increase in its fourth quarter loss to $2.7 billion.
The dilemma facing New York Community Bancorp comes roughly one year after the fall of Silicon Valley Bank and Signature Bank, seizures that triggered widespread panic among depositors.
NYCB asset crisis
NYCB played the role of rescuer during last year’s crisis, agreeing to absorb assets from Signature that had been seized by regulators. But that also pushed NYCB above $100 billion in assets, a threshold that brought heightened scrutiny from regulators.
NYCB has said those tighter requirements are what led to the decision to slash its dividend and set aside more for future loan losses.
It set aside $552 million, well above estimates, to account for weaknesses tied to office properties and multifamily apartments. NYCB is a big lender to rent-regulated apartments in New York City.
The panic at Silicon Valley Bank started last March after the bank sold assets at a loss, making it more difficult to raise the needed capital.
