On Wednesday, New York Community Bancorp said that it had secured $1 billion from investors, including Liberty Strategic Capital, the former Treasury Secretary Steven Mnuchin's company, and that it had appointed a previous Comptroller of the Currency as its new chief executive officer.
The equity investment also included participation from investment firms like Reverence Capital Partners, Hudson Bay Capital, and Citadel Global Equities, as well as other institutional investors and some bank management personnel, according to NYCB.
The bank's stock saw a volatile session, plunging 45% before the announcement and then rising 30% as it finally ended 7.4% higher. In a client note, Chris McGratty, an analyst at KBW, said that while the capital raise hurts current shareholders, it should lessen their anxiety about systemic concerns.
According to McGratty, this is a smart answer for the larger system; it demonstrates the ability to draw in private funding, and the board and management revamp provide the company credibility with investors. He thinks the bank can still raise its capital ratio above the present target of 10% by selling assets and transferring credit risk.
Argus Research banking analyst Kevin Heal said that he anticipates the deal will calm depositor fears and that NYCB does not have the same amount of uninsured deposits as Silicon Valley Bank, which bore uninsured deposits that had been blown off the door in the billions.
The current CEO of BNCY, Joseph Otting, was previously President Donald Trump's Comptroller of the Currency. He also served as OneWest's CEO as well as a board member from 2010 until the bank's sale to CIT Group in 2015. Steven Mnuchin, a recent investor in NYCB, is one of the founders of OneWest Bank. Mnuchin said that they were aware of the NYCB's credit risk profile when evaluating this investment. Mnuchin will become a member of the expanded board of NYCB.
NYCB has come under pressure since it revealed a shocking fourth-quarter loss on January 31, burdened by increased provisions associated with its exposure to the troubled commercial real estate industry.
It reduced its quarterly dividend by 70% in order to raise capital for the more stringent regulations that banks with $100 billion or more in assets must comply with. NYCB passed the threshold last year when it acquired the assets of Signature Bank. Since the announcement on January 31, the stock has dropped by about 70%.
The most recent wave of sell-offs in NYCB shares began last week when the bank said that it had discovered "material weaknesses" in its internal controls related to its loan approval process. It also changed the amount it had previously reported for its quarterly loss to ten times higher.
The bank announced Joseph Otting, a former Comptroller of the Currency, as its new chief executive officer on Wednesday. Alessandro DiNello, who was CEO for a brief period of time, will step down and be replaced by Otting as the non-executive chair.
According to NYCB, Reverence Capital will invest $200 million, Hudson Bay $250 million, and Liberty Strategic $450 million. For NYCB's most recent investment, Jefferies served as the only placement agent and sole financial adviser.
The infusion of capital occurs about a year after Silicon Valley Bank and Signature Bank collapsed, setting off a regional banking panic that damaged the confidence of the market in some regional banks.
The FDIC helped with the sale of SVB and Signature, along with the subsequent auction of First Republic Bank, by providing guarantees against losses and restricting the assets that buyers may purchase: for instance, NYCB did not purchase Signature's portfolio of commercial real estate.
