HomeBusinessSteven Mnuchin leads $1 billion effort to bail out NYCB

Steven Mnuchin leads $1 billion effort to bail out NYCB

New York Community Bank (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 Steven Mnuchin.

Wednesday’s moves came after shares of the $114 billion lender fell as much as 45% on a report that NYCB was hunting for investors willing to buy shares in the company.

After the $1 billion deal was announced, the stock rebounded as much as 18%. It closed the day more than 7% higher.

The companies lined up to provide the infusion include Liberty Strategic Capital, a company founded by Mnuchin in 2021, as well as Hudson Bay Capital, Reverence Capital Partners and Citadel Global Equities.

They and several bank executives will buy common and convertible preferred stock, effectively taking control of the Hicksville, NY-based company.

The deal also comes with another change at the top. Former Comptroller of the Currency Joseph Otting will become the new CEO of NYCB, the third person to hold the title in recent weeks.

The transaction is expected to close on March 11 and is subject to regulatory approval.

Steven Mnuchin, founder and managing partner of Liberty Strategic Capital and former US Treasury Secretary, speaks at the 2021 Milken Institute Global Conference in Beverly Hills, California, US, October 19, 2021. REUTERS/David Swanson

Steven Mnuchin, founder of Liberty Strategic Capital and former Treasury Secretary. (David Swanson/REUTERS) (REUTERS/Reuters)

“In evaluating this investment, we took into account the bank’s credit risk profile,” Mnuchin said in a news release. His company is expected to contribute $450 million, more than the other investors.

See also  Oil gains again as Israel prepares for a possible attack on Iran

“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 NYCB’s major banks .”

Mnuchin, who served as Treasury secretary under President Donald Trump and was previously a partner at Goldman Sachs, has past experience with another troubled bank.

Customer Barbara Fox waits outside the IndyMac Bank in Santa Monica on Thursday, July 17, 2008.  The frustration didn't end for some IndyMac customers when they were finally able to withdraw their money from the failed Southern California bank that was seized by federal regulators last week.  Some people have encountered more problems when trying to deposit IndyMac checks at other banks.  (AP Photo/Nick Ut)Customer Barbara Fox waits outside the IndyMac Bank in Santa Monica on Thursday, July 17, 2008.  The frustration didn't end for some IndyMac customers when they were finally able to withdraw their money from the failed Southern California bank that was seized by federal regulators last week.  Some people have encountered more problems when trying to deposit IndyMac checks at other banks.  (AP Photo/Nick Ut)

IndyMac was a prominent bank failure during the 2008 financial crisis. (Nick Ut/AP Photo) (ASSOCIATED PRESS)

In 2009, he was part of an investor group that acquired California mortgage lender IndyMac Bank for about $1.5 billion after it was seized by the federal government during the 2008 financial crisis.

He and the group called that lender OneWest and hired Otting to help turn the tide. OneWest was eventually sold to CIT Bank for more than $3 billion, and Otting later served as the currency’s acting comptroller during the Trump administration.

This new rescue of NYCB comes with several changes in NYCB leadership. By becoming CEO, Otting replaces Alessandro DiNello, who had been the bank’s real boss since February 6 and officially became CEO last week after the departure of former CEO Thomas Cangemi.

See also  Convenience store chain where Biden bought snacks while campaigning was sued for discrimination

DiNello will become non-executive chairman of a smaller nine-person board that includes a number of new faces, including Mnuchin, Otting, Hudson Bay’s Allen Puwalski and Reverence Capital’s Milton Berlinski.

“We welcome the approach Liberty and its partners have taken in evaluating the bank and look forward to incorporating their insights moving forward,” DiNello said. It is “a positive confirmation of the turnaround that is underway and allows us to execute our strategy from a position of strength.”

A month of unrest

Shares of NYCB first started falling on Jan. 31 when it surprised analysts by cutting its dividend and setting aside more for credit losses.

Unrest increased again last week after the company announced Cangemi’s departure, weaknesses in internal controls and a tenfold increase in fourth-quarter losses to $2.7 billion.

The dilemma facing New York Community Bancorp comes about a year after the collapse of Silicon Valley Bank and Signature Bank, seizures that caused widespread panic among depositors.

Now there are new fears that the growing weakness in commercial real estate could trickle down to other banks, creating a new set of problems.

Fed Chairman Jerome Powell said Wednesday that the commercial real estate exposures banks face are “manageable” but that some lenders “will incur losses.”

See also  2 unstoppable stocks to buy and hold forever

The Fed, he told lawmakers at a hearing in Washington, is in contact with banks to ensure they have enough liquidity and capital to absorb any losses.

Federal Reserve Board Chairman Jerome Powell appears before the House Financial Services Committee on Capitol Hill on Wednesday, March 6, 2024, in Washington.  (AP Photo/Mark Schiefelbein)Federal Reserve Board Chairman Jerome Powell appears before the House Financial Services Committee on Capitol Hill on Wednesday, March 6, 2024, in Washington.  (AP Photo/Mark Schiefelbein)

Federal Reserve Board Chairman Jerome Powell appeared before the House Financial Services Committee on Wednesday. (Mark Schiefelbein/AP Photo) (ASSOCIATED PRESS)

“I’m confident we’re doing the right things. I think it’s a manageable problem. If that changes, I will say so.”

NYCB played the role of savior during last year’s crisis, agreeing to acquire Signature assets seized by regulators. But that also pushed NYCB past $100 billion in assets, a threshold that brought increased scrutiny from regulators.

NYCB has said these stricter requirements led to the decision to cut the dividend and set aside more for future credit losses.

NEW YORK, NEW YORK - FEBRUARY 08: A New York Community Bank stands in Brooklyn on February 8, 2024 in New York City.  New York Community Bancorp, a regional lender, has lost about 60% of its value in the past eight days and its credit rating has been downgraded to Junk by Moody's.  (Photo by Spencer Platt/Getty Images)NEW YORK, NEW YORK - FEBRUARY 08: A New York Community Bank stands in Brooklyn on February 8, 2024 in New York City.  New York Community Bancorp, a regional lender, has lost about 60% of its value in the past eight days and its credit rating has been downgraded to Junk by Moody's.  (Photo by Spencer Platt/Getty Images)

A branch of New York Community Bank in Brooklyn. (Spencer Platt/Getty Images) (Spencer Platt via Getty Images)

$552 million was set aside, well above estimates, to account for weaknesses in office buildings and multifamily apartments. NYCB is a major lender for rent-regulated apartments in New York City.

The panic at Silicon Valley Bank began last March after the bank sold assets at a loss, making it harder to raise needed capital.

“When you sell assets, you incur losses, so you better have capital on hand before you sell assets,” Chris Marinac, an analyst for Janney who covers the bank, told Yahoo Finance.

David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto and other financial areas.

Click here for an in-depth analysis of the latest stock market news and events affecting stock prices.

Read the latest financial and business news from Yahoo Finance

- Advertisement -
RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Recent Comments