Steven Mnuchin and group of investors undertake multi-billion dollar NYCB rescue attempt

The stumbling US regional bank NYCB is trying everything to regain battered investor confidence. Former US Treasury Secretary Steven Mnuchin also wants to help. He is part of a group of investors who are supporting the bank with a billion-dollar cash injection.

• NYCB stumbles
• Investors flee NYCB stock
• Financial injection should bring about a turnaround

The US regional bank New York Community Bancorp is currently not out of the headlines. The struggling financial institution’s problems became apparent in late January 2024, when the bank unexpectedly slashed its dividend and set aside more money for loan losses. The NYCB acted as a rescuer of the insolvent Signature Bank during the US regional banking crisis in 2023 by taking over some of its assets. Now the credit institution itself is in trouble.

The problems intensified when the bank recently announced that it had identified weaknesses in its financial reporting controls. In addition, the quarterly loss in the fourth quarter was corrected to a whopping $2.7 billion. In January it was said that the loss was only $252 million. Additionally, NYCB announced the departure of CEO Thomas Cangemi, who was replaced by Alessandro DiNello.

The news surrounding the bank caused investors to flee NYCB stock in droves. Since the beginning of the year, the performance of the stumbling bank has been -66.57 percent (as of the closing price on March 8, 2024).

The crisis in the US commercial real estate sector is spreading widely

Concerns are growing that the regional bank’s crisis could spread to other financial institutions and trigger renewed panic among investors and depositors. Concerns are now also compounded by the weakening US commercial real estate market. It is feared that the weakness could also affect the banks. According to Yahoo Finance, Fed Chairman Jerome Powell recently said that the risks for banks in this area were “manageable” but that there would be “losses” for some lenders.

Investor group led by Steven Mnuchin supports with cash injection

In order to help the New York Community Bancorp get back on its feet, former US Treasury Secretary Steven Mnuchin, as part of a group of investors, has now agreed to a billion-dollar financial injection. With the deal, the NYCB board will gain four new members, including Mnuchin himself. In addition, the bank will again have a different CEO, namely Joseph Otting.

The investment agreement still needs to be finalized. If everything goes well, NYCB will receive $450 million in investments from Mnuchin’s equity firm Liberty Strategic Capital, $250 million from Hudson Bay Capital and $200 million from Reverence Capital Partners. With additional cash contributed by other institutional investors and support from some of the bank’s managers, the deal will reach a value of $1.05 billion.

In return, investors will receive company shares at a price of $2 per share as well as convertible preferred shares that can pay a dividend every three months, the bank reports.

NYCB investors and analysts react with relief

Investors celebrated the prospect of support and ultimately sent the battered shares up 7.45 percent in response to the news. A day later, the bank held a conference call on the agreed deal, which sent the shares up another 5.78 percent at the close of trading.

Analysts also reacted with relief to NYCB’s presentation. The rating agency Moodys’s had previously assigned the bank the status of “review for downgrade”, which it changed to “review for upgrade” after the conference call. MarketWatch echoes the analysts as follows: “The planned leadership changes are noteworthy for a bank.” However, they cautioned: “The participation of private equity investors in the bank is helpful in stabilizing its capital in the short term, but creates long-term uncertainties regarding the corporate governance and the long-term strategy of the bank, which are now also being reviewed the ratings are examined”.

As future CEO Otting explained, the bank is currently examining whether it will continue to operate as a Category IV bank with assets of $100 billion, as this status would come with some strict capital requirements that would have led to the Credit institution should have channeled more funds into its balance sheet.

Hope for returning deposits

Acting CEO DiNello expressed confidence that the deposits the bank had lost as a result of its problems would return with the knowledge of the latest cash injection: “We were very happy with the development of the deposit base. Now that we have the capital have, we are confident that the [eingehenden] deposits that we have seen will continue on a larger scale,” MarketWatch quoted him as saying.

According to Otting, the plan is now to reduce the bank’s exposure to commercial real estate.

Morgan Stanley also reacted positively to the bank’s presentation and raised its price target from $4 to $6. Meanwhile, the “equal weight” rating remained. However, analyst Manan Gosalia cautioned that they still see “various risks related to losses in office and multi-family properties, potential loan sales and financing costs,” according to the news portal.

The next quarterly presentation on April 24th should provide more information on the bank’s further development.

Editorial team

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