Regional lender in difficulty New York Community Bank announced on Wednesday a $1 billion capital raise and a leadership change led by former Treasury Secretary Steven Mnuchin, leading to a sharp rebound in its shares.
NYCB agreed to a deal with several investment firms, including Mnuchin’s Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners, worth more than $1 billion in exchange for shares in the regional bank. Press release Wednesday afternoon.
Mnuchin will become one of four new members of the bank’s board of directors as part of the deal. Joseph Oetting, the former Comptroller of the Currency, will also join the board of directors and serve as CEO.
Following the announcement, shares jumped sharply, but trading was extremely volatile. The stock paused briefly, rising nearly 30% on the day. They gave back some of those gains when trading resumed and ended the day up more than 7% after several more halts.
Prior to the press release, shares fell 42% amid reports from Reuters and The Wall Street Journal that NYCB was considering raising capital.
NYCB shares fell sharply on Wednesday.
The stock traded below $2 a share at its lowest point on Wednesday, the latest negative milestone for the company, which started January above $10 a share.
The cash injection is the latest development in a turbulent start to the year for NYCB. The bank said in late January that it was sharply increasing the provision for loan losses on its balance sheet as a potential problem was its exposure to commercial real estate. Shortly thereafter, Moody’s Investors Service downgraded the bank’s credit rating to junk status, and NYCB appointed former Flagstar Bank CEO Alessandro DiNello as executive chairman.
Then, last week, NYCB said it had “discovered significant weaknesses in the company’s internal controls related to internal loan reviews” and announced DiNello was taking over as CEO after a short-lived tenure. Dinello will remain as non-executive chairman of the bank, according to a press release issued Wednesday.
The issues surrounding NYCB are reminiscent of those that swirled around Silicon Valley banks Signature Bank and First Republic before all three failed in the spring of 2023. They were among several regional banks that struggled as higher interest rates drove down the value of old Treasury assets. and caused some investors to move their accounts elsewhere.
As the U.S. economy continues to show surprising strength and inflation remains above the Federal Reserve’s 2% target, traders are lowering expectations for interest rate cuts this year. The environment of higher rates for longer could put pressure on the banks themselves and on commercial real estate, which is a key business for NYCB and many other regional lenders.
The fight over NYCB may have taken both regulators and investors by surprise. Last March, the regional lender acquired most of Signature Bank through receivership from the Federal Deposit Insurance Corp.
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