Key Takeaways
- New York Community Bancorp announced on Wednesday a $1 billion investment from a group of firms, led by former Treasury Secretary Steven Mnuchin’s Liberty Capital.
- As part of the deal, Mnuchin and two other investors will join the lender’s board of directors. They will be joined by former Comptroller of the Currency Joseph Otting, who will also take over as CEO.
- Trading in NYCB’s stock was halted Wednesday after it plummeted following a Wall Street Journal report outlining the bank’s efforts to raise capital. The stock jumped after news of the cash infusion.
- Fed Chair Jerome Powell, speaking in a congressional testimony Wednesday, said that banks may feel the pain from commercial real estate loan exposure for several years.
New York Community Bank (NYCB) on Wednesday secured a $1 billion equity investment from a consortium of firms after the the troubled regional lender’s shares sank more than 40% and were halted pending news. NYCB stock recovered after the announcement of the cash infusion.
The deal, led by former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital, will not only be a cash injection but will also give NYCB its second new CEO in less than a week and four new board members.
As part of the deal, Mnuchin will join the company’s board of directors. He will be joined by Allen Puwalski of Hudson Bay Capital, which agreed to invest $250 million; Milton Berlinski, Managing Partner of Reverence Capital, which will invest $200 million; and Joseph Otting, former Comptroller of the Currency, who will also take over as the bank’s new CEO.
“With the over $1 billion of capital invested in the Bank,” Mnuchin said in a statement, “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.”
Trading Halted Amid Turbulence
Trading in the firm’s shares was paused earlier in the day after plumetting following a Wall Street Journal report outlining the bank’s efforts to raise fresh cash.
It was the stock’s third slide of that magnitude in a little over a month. The first came in late January when the firm cut its dividend and increased its provisions for credit losses by nearly 800%. Shares tumbled again on March 1 after the company replaced its longtime CEO and reported “material weaknesses” in internal loan review controls.
The bank’s results and its stock price have taken a hit from its outsized exposure to commercial real estate loans, which has frightened investors and creditors. Moody’s downgraded the bank’s rating last week after cutting it to junk in early February.
NYCB shares ended Wednesday’s session up 7.5% at $3.46, after falling as low as $1.70 earlier in the session. Despite the gain, the stock has lost about two-thirds of its value since the start of the year.
Powell Says CRE Issues May Linger For Years
In congressional testimony Wednesday, Federal Reserve Chair Jerome Powell addressed concerns over regional banks getting in trouble with commercial real estate loans. He said his team has been in touch with institutions to make sure that they are prepared for inevitable losses.
“It’s going to be with us as a problem we’ll be working through I think for several years,” Powell said. “The idea is you’ve got to have enough capital, enough liquidity and a plan to take the losses that you’re probably going to take.”
Banks with large portfolios of commercial real estate loans are encountering issues as property owners struggle to lease office space and in turn, pay down their debt. Work-from-home policies that became popular after pandemic-related stay-at-home measures were implemented in 2020 have left many spaces vacant.
“We have been engaged with medium- and small-sized banks principally on this. So I am confident that we’re doing the right things there. And I do believe it’s a manageable problem. If that changes, you know, then I’ll say so.”
-With additional reporting by Christiana Sciaudone.
UPDATE: Closing share price information was added after initial publication.