New York Community Bancorp Lands $1B In Equity, Names New CEO
New York Community Bancorp has reached a deal to raise more than $1B in equity and has named former Comptroller of the Currency Joseph Otting as its new CEO.
Shares in NYCB plummeted more than 40% on Wednesday before trading was halted following reports that it was seeking a cash infusion. That infusion will come from a group of investment firms, led by Liberty Strategic Capital, which was founded by former Treasury Secretary Steven Mnuchin.
Liberty would provide $400M of equity in the $1.05B deal, which is expected to close March 11, the bank announced. Hudson Bay Capital would invest $250M, and Reverence Capital Partners would invest $200M. Otting, Mnuchin, Hudson Bay's Allen Puwalski and Reverence's Milton Berlinski will join NYCB's board, which will shrink to nine members.
The bank, one of the largest lenders on apartment buildings in New York City, had seen its stock drop more than 82% so far this year, with shares down near an all-time low of $1.86 before trading was halted.
Trading resumed after 2:30 p.m. ET, and the share price surged to $4.18 before ending the day at $3.46, up 7.5% from Tuesday's close, but still down roughly 67% for the year.
"In evaluating this investment, we were mindful of the Bank's credit risk profile," Mnuchin said in a statement. "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."
Last week, the bank disclosed that its management "identified material weaknesses" in the company's internal loan review process that resulted in lax oversight and poor risk assessment. It announced that it took an additional $2.4B loss due to impairment charges in its portfolio.
Its troubles have set off fresh fears of a banking crisis like the one that led to the failure of Signature Bank, Silicon Valley Bank and First Republic Bank last year. Regulators have identified banks with heavy exposure to commercial real estate as potential sources of concern, but have said they don't expect catastrophic ripple effects for the broader economy.
The circumstances that led NYCB to the point where it needed a billion-dollar equity infusion to shore up its finances are somewhat unique.
NYCB had grown in recent years after acquiring Flagstar Bank and many of the assets of Signature Bank after it failed last year. The acquisitions pushed its assets north of the $100B threshold, which subjected it to new regulations that required it to set aside more capital to cover for potential losses.
Those requirements spurred the corporation to slash its dividend by 70% in January, which kicked off a stock sell-off it is still reckoning with.
When it announced its earnings results from 2023, its commercial real estate loans raised alarm bells among investors. The corporation reported a $255M loss in the fourth quarter, driven by a higher-than-expected increase in allowance for credit losses to over $550M.
The fallout didn't stop there. Its chief auditor and chief compliance officers resigned, as did CEO Thomas Cangemi. He was replaced last week by Alessandro DiNello, the former Flagstar Bank CEO. DiNello was replaced less than a week later by Otting, who served as the nation's chief banking administrator under former President Donald Trump. The company named new chief auditor and chief risk officers on Friday.
The equity infusion "is a positive endorsement of the turnaround that is underway and allows us to execute on our strategy from a position of strength," DiNello said in a statement.
"We enter this next chapter with a strong balance sheet and liquidity position supported by a diversified and retail focused deposit base," he said. "Our new leadership team, with the support of the reconstituted Board, will continue to take the actions that are necessary to improve earnings, profitability and drive enhanced value for shareholders."
The investment group — which also includes Citadel Securities, other institutional investors and NYCB executives — will provide the equity by purchasing newly issued common stock and convertible preferred stock priced at $2 per share.
