© Reuters. FILE PHOTO: A sign above a New York Community Bank branch in Yonkers, New York, U.S., January 31, 2024. REUTERS/Mike Segar/File Photo
By Niket Nishant, Manya Saini and Anirban Sen
(Reuters) – New York Community Bank (NYSE:) said 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 as its new chief executive.
According to NYCB, investment firms Hudson (NYSE:) Bay Capital, Reverence Capital Partners, Citadel Global Equities, other institutional investors and some members of the bank's management also participated in the equity investment.
The bank's shares had a rollercoaster session, falling 45% before the announcement, rebounding 30% after ultimately closing 7.4% higher. KBW analyst Chris McGratty said in a note to clients that the capital raise is painful for existing shareholders but should reduce fears of systemic risks.
“This is a good solution for the overall system, shows the ability to attract private capital, and the management and board review provides credibility with investors,” McGratty wrote. He believes the bank can still sell assets and transfer credit risk to further increase its capital ratio above the current target of 10%.
Kevin Heal, a banking analyst at Argus Research, hopes the deal will allay depositor fears, adding that unlike Silicon Valley Bank, which had uninsured deposits that were “destroyed by the billions,” NYCB does not have the same level of unsecured warranty. insured deposits.
Joseph Otting, BNCY's new CEO, is the former Comptroller of the Currency under President Donald Trump and was CEO and board member of OneWest from 2010 to 2015, when the bank was sold to CIT Group (NYSE:) . One of the founders of OneWest bank is Steven Mnuchin, one of NYCB's new investors. “In evaluating this investment, we took into account the bank's credit risk profile,” Mnuchin said in a statement. Mnuchin will join NYCB's expanded board of directors.
NYCB 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 cut its quarterly dividend by 70% to shore up capital and deal with stricter regulation to which banks with assets of $100 billion or more are subject. NYCB acquisition of Flagstar Bank in 2022 and signature bank (OTC:) assets last year took it above that threshold. The stock is down about 70% since its January 31 announcement.
The latest round of selloff in NYCB shares was triggered last week, when the bank revealed it found “material weaknesses” in internal controls linked to its loan review. It also revised its quarterly loss to 10 times what was previously stated.
The bank on Wednesday named Joseph Otting, former Comptroller of the Currency, its new chief executive. Otting will replace Alessandro DiNello, who will be non-executive chairman after serving as CEO for only a few days.
Liberty Strategic will inject $450 million, Hudson Bay will inject $250 million and Reverence Capital will inject $200 million, NYCB said. Jefferies was NYCB's exclusive financial advisor and sole placement agent for the latest investment.
The capital injection comes nearly a year after the bankruptcies of Silicon Valley Bank and Signature Bank, which precipitated the regional banking run that has undermined market confidence in some regional lenders.
The FDIC assisted in the sale of both SVB and Signature, as well as later in the auction of First Republic Bank (OTC:), through guarantees against losses and allowing buyers to acquire only certain assets: NYCB, for example, did not acquire Signature's commercial real estate portfolio. Meanwhile, PacWest agreed in July to be sold to Bank of California (NYSE:), in a deal that saw private investors provide $400 million of new capital to help shore up 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 loan losses.
“We believe this review of internal controls could lead to additional creation of CRE-related reserves, particularly in relation to the company's multifamily exposure to regulated rents in New York,” brokerage Wedbush wrote in a note earlier this month.
NYCB has committed to reducing its exposure to CRE.
(This story has been refiled to remove a superfluous word, in paragraph 14)
