April 22, 2024

Brighton Journal

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Steven Mnuchin is leading a billion-dollar effort to rescue the New York Commercial Bank

Steven Mnuchin is leading a billion-dollar effort to rescue the New York Commercial Bank

New York Community Bank (NYCB) has made a dramatic attempt to regain investor confidence by announcing a new CEO and pumping in $1 billion from a group that includes former Treasury Secretary Steven Mnuchin.

The moves on Wednesday came after the $114 billion bank's stock fell as much as 45% following a report… That NYCB was looking for investors willing to buy shares in the company.

After the billion-dollar deal was announced, the stock rebounded as much as 18%. It ended the day with an increase of more than 7%.

Firms lined up to deliver this leak include Liberty Strategy Capital, a firm founded by Mnuchin in 2021, as well as Hudson Bay Capital, Reverence Capital Partners and Citadel Global Equities.

They and certain bank managers would purchase common and convertible preferred stock, effectively taking control of the Hicksville, New York-based company.

The deal also comes with a new change at the top. Former Comptroller of the Currency Joseph Otting will become the new CEO of the New York Mercantile Bank, the third person to hold that title in just the past few weeks.

The deal is scheduled to close by March 11 and is still subject to regulatory approvals.

Steven Mnuchin, founder and managing partner of Liberty Strategy Capital and former US Secretary of the Treasury, speaks at the 2021 Milken Institute Global Conference in Beverly Hills, California, US, October 19, 2021. REUTERS/David Swanson

Steven Mnuchin, founder of Liberty Strategic Capital and former Treasury Secretary. Reuters/David Swanson (Reuters/Reuters)

“In evaluating this investment, we were aware of the bank’s credit risk profile,” Mnuchin said in a press release. His company is expected to contribute $450 million, more than other investors.

“With over $1 billion of capital invested in the bank, we believe we now have sufficient capital if reserves are needed to increase in the future to be consistent with or above the coverage ratio of New York Commercial Bank's major bank peers.”

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Mnuchin, who served as Treasury secretary under President Donald Trump and was previously a partner at Goldman Sachs, has previous experience with another troubled bank.

Customer Barbara Fox waits outside IndyMac Bank in Santa Monica Thursday, July 17, 2008. The frustration wasn't over for some IndyMac customers when they were finally able to withdraw their money from the bankrupt Southern California bank that was seized by federal regulators last week.  Some people had more problems when they tried to deposit IndyMac cashier's checks at other banks.  (AP Photo/Nick Ut)Customer Barbara Fox waits outside IndyMac Bank in Santa Monica Thursday, July 17, 2008. The frustration wasn't over for some IndyMac customers when they were finally able to withdraw their money from the bankrupt Southern California bank that was seized by federal regulators last week.  Some people had more problems when they tried to deposit IndyMac cashier's checks at other banks.  (AP Photo/Nick Ut)

IndyMac was one of the high-profile failed banks during the 2008 financial crisis. (AP Photo/Nick Ut) (News agency)

In 2009, he was part of an investor group that acquired California mortgage lender IndyMac Bank for approximately $1.5 billion after it was seized by the federal government during the 2008 financial crisis.

He and the group renamed that lender OneWest and hired Otting to help turn it around. OneWest was eventually sold to CIT Bank for more than $3 billion, and Otting later served as comptroller of the currency during the Trump administration.

This new rescue of NYCB comes with several changes in NYCB's leadership. As CEO, Otting replaces Alessandro Dinello, who has been serving as the bank's de facto head since February 6 and officially became CEO last week following the exit of long-time CEO Thomas Cangemi.

DiNello will become non-executive chairman of a smaller, nine-person board that includes a number of new faces, including Mnuchin, Otting, Hudson's Bay's Allen Powalski and Reference Capital's Milton Berlinski.

“We welcome the approach taken by Liberty and its partners in their evaluation of the bank and look forward to incorporating their ideas in the future,” DiNello said. It is “a positive endorsement of the transformation underway and allows us to implement our strategy from a position of strength.”

A month of turmoil

NYCB stock first began falling on January 31 when it surprised analysts by cutting its dividend and allocating more to loan losses.

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The turmoil intensified again last week after it revealed Cangemi's exit, weaknesses in its internal controls, and a tenfold increase in fourth-quarter losses to $2.7 billion.

The dilemma facing New York Community Bancorp comes nearly a year after the downfalls of Silicon Valley Bank and Signature Bank, takeovers that sparked widespread panic among depositors.

Now there are new fears that the escalating weakness in the commercial real estate sector will spread to other banks, which could cause a new set of problems.

Federal Reserve Chairman Jerome Powell said Wednesday that commercial real estate exposures faced by banks are “manageable” but “there will be losses” among some lenders.

The Fed is in contact with banks to ensure they have enough liquidity and capital to absorb any losses, he told lawmakers during a hearing in Washington.

Federal Reserve Chairman Jerome Powell appears before the House Financial Services Committee on Capitol Hill, Wednesday, March 6, 2024, in Washington.  (AP Photo/Mark Schiefelbein)Federal Reserve Chairman Jerome Powell appears before the House Financial Services Committee on Capitol Hill, Wednesday, March 6, 2024, in Washington.  (AP Photo/Mark Schiefelbein)

Federal Reserve Chairman Jerome Powell appeared before the House Financial Services Committee on Wednesday. (AP Photo/Mark Schiefelbein) (News agency)

“I'm confident we're doing the right things. I think it's a manageable problem. If that changes I will say so.”

The New York Commercial Bank played the role of savior during last year's crisis, agreeing to absorb assets from Signature that had been seized by regulators. But that also pushed the New York central bank past $100 billion in assets, a threshold that has drawn intense scrutiny from regulators.

New York Commercial Bank said it was these tougher requirements that led to the decision to reduce its dividend and set aside more for future loan losses.

NEW YORK, NEW YORK - FEBRUARY 8, 2024: Community Bank of New York stands in Brooklyn on February 08, 2024 in New York City.  New York Community Bancorp, a regional bank, has lost about 60% of its value over the past eight days and was downgraded to junk by Moody's.  (Photo by Spencer Platt/Getty Images)NEW YORK, NEW YORK - FEBRUARY 8, 2024: Community Bank of New York stands in Brooklyn on February 08, 2024 in New York City.  New York Community Bancorp, a regional bank, has lost about 60% of its value over the past eight days and was downgraded to junk by Moody's.  (Photo by Spencer Platt/Getty Images)

Community Bank of New York branch in Brooklyn. (Photo by Spencer Platt/Getty Images) (Spencer Platt via Getty Images)

It set aside $552 million, well above estimates, to account for vulnerabilities associated with office properties and multifamily apartments. NYCB is a major lender for rent-regulated apartments in New York City.

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The panic at Silicon Valley Bank began last March after the bank sold its assets at a loss, making it more difficult to raise the necessary capital.

“If you sell assets, you take losses, so it's better to have capital before you sell assets,” Chris Marinac, a Janney analyst who covers the bank, told Yahoo Finance.

David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrency, and other areas of finance.

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