- NYCB announced a $1 billion capital raise and leadership changes, including former Treasury Secretary Steven Mnuchin joining the board, leading to a rebound in the stock price.
- The capital raise includes Mnuchin’s firm and other investors acquiring equity in exchange for over $1 billion. Joseph Otting, former comptroller, is also joining the board and becoming CEO.
- NYCB has faced issues recently like rising loan losses, a junk credit rating and weaknesses in internal controls, reminiscent of other regional bank failures in 2023 as rates rose.
Struggling regional lender New York Community Bancorp announced a $1 billion capital raise and a leadership shakeup on Wednesday, headlined by former Treasury Secretary Steven Mnuchin. This led to a sharp rebound for NYCB’s stock.
Details of Capital Raise
NYCB has agreed to a deal with several investment firms including Mnuchin’s Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners for over $1 billion in exchange for equity in the regional bank. This was announced in a press release on Wednesday afternoon.
Mnuchin will be one of four new members of the bank’s board of directors as part of the deal. Joseph Otting, former comptroller of the currency, is also joining the board and taking over as CEO.
Stock Price Reaction
The stock jumped sharply after the announcement, but trading was highly volatile. Shares were briefly halted up nearly 30% for the day, before giving back some gains when trading resumed. The stock finished the day up more than 7% after several more halts.
Prior to the press release, the stock was down 42%, amid reports that NYCB was exploring a capital raise.
Background on NYCB’s Struggles
The cash infusion is the latest development in a turbulent start to the year for NYCB. In late January, the bank disclosed it was dramatically raising the allowance for potential loan losses, with commercial real estate exposure being an issue.
This was followed by Moody’s downgrading the bank’s credit rating to junk status. NYCB also named Alessandro DiNello as executive chairman.
Last week, NYCB disclosed “material weaknesses” in internal controls related to loan review. It announced DiNello as CEO, but he will now be non-executive chairman.
Comparisons to Other Bank Failures
The questions surrounding NYCB are reminiscent of those around Silicon Valley Bank, Signature Bank and First Republic before all three failed in 2023. Several regional banks have struggled as higher interest rates pushed down Treasury values and led depositors to move accounts.
Outlook for Interest Rates
With the U.S. economy still showing strength and inflation above the Fed’s 2% target, traders have dialed back expectations for rate cuts this year. The higher-for-longer rate environment could further pressure banks and commercial real estate.
Conclusion
The struggles for NYCB may have caught regulators and investors off guard. Last March, the regional lender acquired much of Signature Bank out of FDIC receivership.
