New York Community Bancorp’s stock (NYCB) staged a recovery from substantial losses on Wednesday following the announcement of a capital-raising deal with a group of investors.
The investor consortium, led by Liberty Strategic Capital (headed by Steven Mnuchin), Hudson Bay Capital, and Reverence Capital Partners, injected over $1 billion into the struggling lender.
Steven Mnuchin remarked, “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”.
As part of the agreement, the former Treasury Secretary will join the board of directors, alongside three other new appointees.
NYCB also revealed that Joseph Otting, former Comptroller of the Currency, would assume the role of CEO, less than a week after Alessandro DiNello was initially announced for the position.
The deal successfully reversed NYCB’s stock plummet, which saw shares drop as much as 47% on Wednesday following reports in The Wall Street Journal about the bank’s capital-raising efforts. Trading had to be halted multiple times due to volatility during Wednesday’s session.
Year-to-date, the bank’s shares have declined by over 67%, impacted by concerns over real estate loans, leadership changes, and the disclosure of internal control issues.
NYCB faced challenges earlier this year when it reported weak fourth-quarter results and highlighted a worrisome exposure to commercial real estate. The stock suffered as fears mounted about the bank potentially dealing with a surge in defaults on weakening commercial property loans.
Notably, the bank set aside $552 million to cover loan losses, with debts unlikely to be recovered totaling $185 million in the fourth quarter, primarily from co-op and office loans.
Confidence in the stock dwindled further last week when the bank surprised investors with a CEO change and disclosed “material weaknesses” in internal controls related to loan reviews, citing issues such as a lack of oversight and risk assessment.
The turmoil at the bank has led to comparisons with last year’s banking system upheaval, during which three lenders collapsed, including Silicon Valley Bank. NYCB acquired the assets of Signature Bank, one of the collapsed lenders last spring, but this expansion increased regulatory scrutiny due to its enlarged size.
According to BI.
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