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NYCB raises more than $1 billion in equity led by Steven Mnuchin’s firm

(Bloomberg) — Commercial real estate lender New York Community Bancorp received an equity investment of more than $1 billion, building confidence in the struggling lender from investors including former U.S. Treasury Secretary Steven Mnuchin.

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The capital injection was led by Mnuchin’s Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners, NYCB said in a statement on Wednesday, confirming an earlier Bloomberg News report. Shares reversed an earlier plunge after the announcement.

“In evaluating this investment, we took into account the bank’s credit risk profile,” Mnuchin said in the statement. “With the more than $1 billion of capital invested in the bank, we believe we now have sufficient capital in case reserves need to be increased in the future to be consistent with or above the coverage ratio of the major banks from NYCB.”

Read more: NYCB thrived despite real estate warnings in pre-fall years

NYCB also named Joseph Otting, the currency’s former comptroller, as its new CEO. Otting replaces Alessandro DiNello, who became CEO on February 29. DiNello will remain as non-executive chairman.

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Liberty, which counts the Saudi Public Investment Fund among its backers, will invest $450 million. Other investors include Hudson Bay for $250 million and Reverence for $200 million, the statement said. In connection with the deal, NYCB will add four new directors to the board, including Mnuchin and Otting.

NYCB shares have lost more than three-quarters of their value this year after the bank cut its dividend and set aside more than expected for credit losses. Last week, the company announced it would replace its CEO and that it had identified “material weaknesses” in the way it tracks credit risk.

“We are excited to invest with such a strong investor group behind this management team, and believe NYCB has a tremendous opportunity to reposition the company and return to growth,” said Milton Berlinski of Reverence Capital, who joins the board of management, in the statement.

Read this next: NYCB exploded despite real estate warnings in pre-fall years

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What Bloomberg Intelligence says:

New York Community Bancorp’s $1 billion equity investment by companies led by former Treasury Secretary Steven Mnuchin should ease concerns about the lender’s capital levels and management capabilities. New CEO Joseph Otting was the former head of the OCC. While NYCB’s junk-rated subordinated debt is trading at distressed levels, higher capital will help absorb the potential increase in credit losses if commercial real estate conditions deteriorate.

Arnold Kakuda and Nick Beckwith, Bloomberg Intelligence

NYCB is a major lender to apartment building owners subject to strict New York rental laws, which limit the income units can generate. It also financed offices in a region struggling with vacancies in the work-from-home era.

Credit rating agencies have reduced the company’s figures to “junk”, with Moody’s Investors Service predicting the bank may set aside more money for deteriorating loans over the next two years.

Some of the pressure on NYCB has been exacerbated by rapid acquisition growth in recent years. Acquisitions of rival lender Flagstar Bancorp and parts of Signature Bank nearly doubled the size of the company. As assets exceeded $100 billion, NYCB faced stricter capital requirements for so-called Category IV banks, given their systemic importance.

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(Adds Mnuchin’s comment in third paragraph.)

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