Troubled regional lender New York Community Bancorp announced a $1 billion capital raise and a leadership change led by former Treasury Secretary Steven Mnuchin on Wednesday, leading to a significant boost in its stock.
NYCB has agreed to a deal with several investment firms, including Mnuchin's Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners, for more than $1 billion in exchange for shares in the regional bank, according to a news release Wednesday afternoon.
Mnuchin will be one of four new members of the bank's board as part of the deal. Joseph Otting, former comptroller of the currency, also joins the board and takes over management.
The stock rose sharply following the announcement, but trading was extremely volatile. Shares were briefly halted that day, rising nearly 30%. When trading resumed, it gave back some of those gains and was last at around 4% on the day after further disruptions.
Prior to the press release, the stock had fallen 42% that day following reports from Portal and the Wall Street Journal that NYCB was exploring a capital increase.
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NYCB shares fell sharply on Wednesday.
The stock was at its low below $2 a share on Wednesday, the latest negative milestone for a company that was above $10 a share at the start of January.
The cash injection is the latest development in a turbulent start to the year for NYCB. The bank said in late January that it was dramatically increasing provisions for potential loan losses on its balance sheet, with its exposure to commercial real estate a potential concern. Shortly thereafter, Moody's Investors Service downgraded the bank's credit rating to junk status and NYCB named former Flagstar Bank CEO Alessandro DiNello as chairman of the board.
Then last week, NYCB announced that it had “identified material weaknesses in the company's internal controls related to internal credit review” and announced that DiNello would take over as CEO in what turned out to be a short term.
The questions surrounding NYCB are reminiscent of those surrounding Silicon Valley Bank, Signature Bank and First Republic before all three failed in spring 2023. They were among several regional banks that struggled as higher interest rates depressed the value of older Treasury holdings and led some depositors to move their accounts elsewhere.
With the U.S. economy remaining surprisingly strong and inflation still above the Federal Reserve's 2 percent target, traders have scaled back their expectations for rate cuts this year. The environment of higher and longer-term interest rates could keep pressure on the banks themselves and on commercial real estate, which is a key business for NYCB and many other regional lenders.
The trouble surrounding NYCB may have caught both regulators and investors by surprise. The regional lender acquired a majority of Signature Bank from receivership by the Federal Deposit Insurance Corporation last March.
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