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NYCB Stock Receives $1 Billion Lifeline Led by Mnuchin’s Liberty Strategic Capital

In a bold move to restore investor confidence, New York Community Bank (NYCB) announced a significant financial rescue plan, securing a $1 billion equity investment led by former Treasury Secretary Steven Mnuchin’s firm, Liberty Strategic Capital. The strategic move comes in the wake of NYCB’s stock plummeting by as much as 45%, prompting the regional lender to seek investors willing to infuse capital.

The deal, unveiled on Wednesday, not only marks a substantial cash injection but also introduces a new CEO and four fresh faces to the bank’s board of directors. Joseph Otting, former Comptroller of the Currency, is set to take the reins as the new CEO, succeeding Alessandro DiNello, who recently assumed the role and will transition to a non-executive chair position.

The consortium of investors contributing to the capital infusion includes Hudson Bay Capital, Reverence Capital Partners, and Citadel Global Equities, in addition to Liberty Strategic Capital. The injection of funds is expected to provide NYCB with the necessary financial cushion to weather uncertainties and potential increases in reserves.

Steven Mnuchin, who played a key role in orchestrating the deal, expressed confidence in the bank’s future, stating, “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.”

This move by Mnuchin echoes his past experience with troubled banks, notably in 2009 when he led an investor group that acquired California mortgage lender IndyMac Bank during the aftermath of the 2008 financial crisis.

The NYCB rescue package also entails significant changes to the bank’s leadership structure. The infusion of funds will usher in a smaller nine-person board, with Mnuchin, Otting, Allen Puwalski from Hudson Bay, and Milton Berlinski from Reverence Capital joining as new members.

NYCB’s recent financial woes began in late January when the bank surprised analysts by slashing its dividend and setting aside a substantial amount for potential loan losses. The turmoil escalated further with the abrupt exit of longtime CEO Thomas Cangemi, weaknesses in internal controls, and a tenfold increase in the fourth-quarter loss to $2.7 billion.

The bank, a major lender to rent-regulated apartments in New York City, faced challenges related to its exposure to commercial real estate, particularly office properties and multifamily apartments. The $1 billion lifeline aims to bolster NYCB’s resilience amid concerns about the ripple effects of commercial real estate weaknesses on other banks.

The banking sector’s regulatory environment is closely monitored, with Federal Reserve Chair Jerome Powell addressing concerns about manageable losses faced by banks with commercial real estate exposures. Powell assured lawmakers of the Fed’s efforts to ensure banks maintain sufficient liquidity and capital to absorb potential losses.

The announcement of the NYCB rescue comes at a time when the banking industry grapples with uncertainties stemming from changing work dynamics and vacancies in commercial spaces due to pandemic-induced remote working policies. NYCB’s previous role as a rescuer during last year’s crisis, absorbing assets from Signature Bank, propelled it above the $100 billion asset threshold, triggering increased regulatory scrutiny.

Despite the tumultuous start to the year, NYCB’s latest move, backed by Mnuchin’s financial acumen, offers a lifeline that may reshape the bank’s trajectory and address concerns about its stability in the wake of recent challenges. The financial markets responded positively to the announcement, with NYCB’s stock rebounding by as much as 18%, providing a glimmer of hope for the beleaguered regional lender.