By Niket Nishant, Manya Saini and Anirban Sen
(Reuters) -New York Community Bancorp said on Wednesday it had raised $1 billion from investors including former U.S. Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital and named a former Comptroller of the Currency its new CEO.
Investment firms Hudson Bay Capital, Reverence Capital Partners, Citadel Global Equities, other institutional investors and certain members of the bank’s management also participated in the equity investment, according to NYCB.
The bank’s stock had a rollercoaster ride during the day, falling 45% prior to the announcement, bouncing 30% higher after and last trading up 6% at $3.43.
The lender has been under pressure since it posted a surprise fourth-quarter loss on Jan. 31, weighed down by higher provisions tied to its exposure to the beleaguered commercial real estate (CRE) sector.
It slashed its quarterly dividend by 70% to bolster capital to deal with stricter regulation that banks with assets of $100 billion and above are subject to. NYCB’s acquisition of Flagstar Bank in 2022 and Signature Bank assets last year pushed it above that threshold.
The stock is down about 70% since its Jan. 31 announcement.
“In evaluating this investment, we were mindful of the bank’s credit risk profile,” Mnuchin said in a statement. Mnuchin will join an expanded board.
“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.”
The latest round of sell-off in NYCB shares was triggered last week, when the bank disclosed it found “material weaknesses” in internal controls tied to its review of loans.
It also revised its quarterly loss to 10 times higher than previously stated.
The bank on Wednesday named Joseph Otting, former Comptroller of the Currency, its new CEO. Otting will replace Alessandro DiNello, who will be the non-executive chair after serving as CEO for only a few days.
Liberty Strategic will infuse $450 million, Hudson Bay $250 million and Reverence Capital will inject $200 million, NYCB said.
Jefferies was the exclusive financial adviser and sole placement agent for NYCB for the latest investment.
The capital infusion comes nearly one year after the failures of Silicon Valley Bank, and Signature Bank – which precipitated the regional banking panic which has undermined market confidence in some regional lenders.
The FDIC assisted the sale of both SVB and Signature, as well as later the auction of First Republic Bank, through guarantees against losses and allowing buyers to only take on certain assets: NYCB, for example, did not acquire Signature’s commercial real estate portfolio.
PacWest meanwhile agreed in July to be sold to Banc of California, in a deal which saw private investors supported supply $400 million of new capital to help reinforce the combined bank’s balance sheet.
CRE CONCERNS
Several Wall Street analysts have flagged concerns that the lender’s exposure to CRE could also require it to build additional capital reserves to absorb potential losses on loans.
“We believe this review of internal controls could lead to additional CRE-related reserve building, particularly related to the company’s NYC rent-regulated multifamily exposure,” brokerage Wedbush wrote in a note earlier this month.
NYCB has pledged to reduce its exposure to CRE.
(Reporting by Niket Nishant and Manya Saini in Bengaluru and Anirban Sen and David French and Tatiana Bautzer in New York; Additional reporting by Mehnaz Yasmin; Editing by Anil D’Silva, Sriraj Kalluvila and Shounak Dasgupta, Megan Davies and Nick Zieminski)
