NYCB recovers from sharp losses as Steven Mnuchin's firm provides $1 billion equity investment
- NYCB stock rose after a $1 billion investment deal was reached, led by Steven Mnuchin's Liberty Strategic Capital.
- NYCB also said it named Joseph Otting as its newest CEO, a week after shaking up leadership.
New York Community Bankcorp stock recovered from sharp losses on Wednesday after announcing that it reached a deal for a capital raise with a cohort of investors.
The investor group — led by Steven Mnuchin's Liberty Strategic Capital, Hudson Bay Capital, and Reverence Capital Partners — invested over $1 billion into the troubled lender.
"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 said in a statement, cited by Bloomberg.
As part of the deal, the former Treasury Secretary will be added to the board of directors, alongside three other new additions.
NYCB also announced that Joseph Otting, former comptroller of the currency, would take over as its CEO. That comes less than a week after Alessandro DiNello was announced for the role.
The deal reversed NYCB's stock plunge. Shares fell as much as 47% Wednesday after The Wall Street Journal reported the bank was looking to raise capital. Trading was halted multiple times for volatility throughout Wednesday's session.
Year-to-date, the bank's shares have shed over 67%, weighed down by real-estate loan worries, leadership shake-ups, and disclosure of internal control issues.
NYCB's issues cropped up this year when the lender reported weak results for the fourth-quarter and highlighted a concerning exposure to commercial real estate. Given forecasts that the property sector is at risk of a wave of defaults, the stock plummeted on fears that the bank could be saddled with weakening commercial property loans.
Specifically, the bank set aside $552 million to cover loan losses. Led by co-op and office loans, debts unlikely to be recovered totaled $185 million in the fourth quarter.
Confidence in the stock tumbled again last week when the lender surprised investors with a CEO change and disclosed "material weaknesses'' in internal controls around how it reviews loans. Cited problems included a lack of oversight and risk assessment.
The turmoil at the bank has prompted comparisons to last year's banking-system mayhem, during which three lenders collapsed. That included the Silicon Valley Bank, which failed after the value of its long-term bond portfolio plummeted in the wake of aggressive rate hikes by the Fed.
NYCB took on the assets of Signature Bank, one of the lenders that collapsed last spring. The acquisition also added to its dilemma, as its boosted size made NYCB subject to higher regulatory scrutiny.