New York Community Bancorp (NYCB.N) received $1 billion from Liberty Strategic Capital and appointed a former Comptroller of the Currency as CEO on Wednesday.
Hudson Bay Capital, Reverence Capital Partners, Citadel Global Equities, institutional investors, and bank management bought the equity, according to NYCB. The bank's stock plunged 45% before the announcement, then rebounded 30% and closed 7.4% higher. A note to clients by KBW analyst Chris McGratty said the capital increase harms existing shareholders but decreases systemic risk.
"This is a good solution for the broader system, shows ability to attract private capital, and the management and board overhaul provide credibility with investors" , said McGratty. He believes the bank may sell assets and transfer credit risk to increase its capital ratio above 10%. Argus Research financial expert Kevin Heal expects the arrangement to calm depositors and observed that NYCB does not have uninsured deposits like Silicon Valley Bank, which was "blown off the door in billions".
Joseph Otting, former Comptroller of the Currency under President Donald Trump and OneWest CEO and board member from 2010 to 2015, when the bank was sold to CIT Group, is the next BNCY CEO OneWest founder Steven Mnuchin joined NYCB as an investor. "We considered the bank's credit risk when assessing this investment," said Mnuchin. Mnuchin joins NYCB's extended board.
After its surprise fourth-quarter loss on Jan. 31, NYCB has been criticized for its increased provisions for the faltering commercial real estate (CRE) sector. It lowered quarterly payouts by 70% to build money for stricter $100 billion-plus bank regulation. After acquiring Flagstar Bank in 2022 and Signature Bank last year, NYCB exceeded that milestone. Shares dropped 70% after its Jan. 31 release.
The current NYCB share sell-off began last week when the bank admitted "material weaknesses" in loan review internal controls. Its quarterly loss increased 10-fold. On Wednesday, the bank selected former CFO Joseph Otting CEO. After a few days as CEO, DiNello will become non-executive chair, then Otting. NYCB said Liberty Strategic will invest $450 million, Hudson Bay $250 million, and Reverence Capital $200 million. Jefferies was NYCB's sole financial adviser and placement agent for the latest deal.
Several smaller lenders lost market trust after Silicon Valley Bank and Signature Bank's failures a year ago. FDIC guarantees and limits on buyer assets sold SVB, Signature, and First Republic Bank. NYCB did not buy Signature's commercial real estate. Private investors invested $400 million to improve PacWest's balance sheet after it was sold to Banc of California (BANC.N) in July. Several Wall Street analysts worry that the lender's CRE exposure may necessitate capital buffers to cover loan losses.
"We believe this review of internal controls could lead to additional CRE-related reserve building, particularly related to the company's NYC rent-regulated multifamily exposure," Wedbush said in January.
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