New York Community Bank (NYCB) has taken significant steps to regain investor confidence after experiencing a sharp decline in its stock value. The bank announced the appointment of a new CEO, Joseph Otting, and secured a $1 billion infusion from a group of investors that includes former Treasury Secretary Steven Mnuchin. These developments have resulted in a rebound of NYCB’s stock, which closed the day up 8%.
The group of investors providing the $1 billion infusion consists of Liberty Strategic Capital, founded by Mnuchin in 2021, as well as Hudson Bay Capital, Reverence Capital Partners, and Citadel Global Equities. Along with some bank managers, these investors will purchase common and convertible-preferred stock, effectively taking control of NYCB. Mnuchin’s firm is expected to contribute $450 million, the largest amount among the investors.
Mnuchin expressed confidence in the investment, stating, “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 has previous experience with troubled banks, having been part of an investor group that acquired IndyMac Bank during the 2008 financial crisis.
The rescue of NYCB also brings about changes in the bank’s leadership. Otting replaces Alessandro DiNello as CEO, who had been acting as the bank’s true boss since February 6. DiNello will assume the role of non-executive chair on a smaller nine-person board that includes Mnuchin, Otting, and representatives from Hudson Bay and Reverence Capital.
NYCB’s stock began falling on January 31 after surprising analysts with a dividend cut and increased provisions for loan losses. The situation worsened with the exit of longtime CEO Thomas Cangemi, weaknesses in internal controls, and a significant increase in fourth-quarter losses. These challenges come at a time when concerns about commercial real estate weaknesses are mounting, potentially affecting other banks.
Federal Reserve Chairman Jerome Powell reassured lawmakers that the commercial real estate exposures faced by banks are manageable, but he acknowledged that there will be losses among some lenders. The Fed is closely monitoring banks to ensure they have sufficient liquidity and capital to absorb any losses.
NYCB, which played a rescuer role during last year’s crisis by absorbing assets from Signature Bank, finds itself facing increased regulatory scrutiny due to surpassing $100 billion in assets. This led to the decision to cut dividends and set aside more funds for future loan losses. The bank allocated $552 million to account for weaknesses related to office properties and rent-regulated apartments in New York City, as it is a significant lender in this sector.
The recent developments at NYCB highlight the challenges faced by banks in the current economic climate. However, the infusion of capital and changes in leadership provide a positive outlook for the bank’s future. With the support of experienced investors like Mnuchin and Otting’s track record in turning around troubled banks, NYCB is well-positioned to navigate through these turbulent times.