Steven Mnuchin Leads $1 Billion Attempt to Rescue NYCB

(Yahoo!Finance) - 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.

The moves on Wednesday came after the stock of the $114 billion lender fell as much as 45% following a report that 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%.

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.

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.

"In evaluating this investment, we were mindful of the bank's credit risk profile," Mnuchin said 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."

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.

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."

NYCB's stock first began falling on Jan. 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.

Now there are new fears that mounting commercial real estate weaknesses could ripple through other banks, causing a new set of problems.

Fed chairman Jerome Powell said Wednesday that the commercial real estate exposures banks face are "manageable" but that there "there will be losses" among some lenders.

The Fed, he told lawmakers during a hearing in Washington, is in touch with banks to make sure they have enough liquidity and capital to absorb any losses.

"I am confident we are doing the right things. I do believe it is manageable problem. If that changes I will say so."

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.

"If you sell assets, you're taking losses so you're better off to have capital in place before you sell assets," Chris Marinac, an analyst for Janney who covers the bank, told Yahoo Finance.

By David Hollerith · Senior Reporter

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


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