Former Treasury Secretary’s Company Saves NYCB with $1 Billion Lifeline!


Embattled regional lender New York Community Bank (NYCB) is receiving an equity investment of more than $1 billion.

The bulk of the investment, $450 million, comes from former Treasury Secretary Steven Mnuchin's firm, Liberty Strategic Capital. The remaining sum will come from Hudson Bay Capital, Reverence Capital Partners, Citadel Global Equities and “other institutional investors and certain members of the Company's management,” according to an announcement NYCB made Wednesday afternoon.

The bank's shares plunged more than 40% on Wednesday after The Wall Street Journal reported that the bank was looking for a significant cash injection. After the deal was announced, shares soared 31%, but those gains quickly stabilized. In the end, NYCB stock closed 7% higher for the day after trading settled.

The money “provides a lifeline,” David Chiaverini, managing director of equity research at Wedbush Securities, told CNN.

In addition to the investment, NYCB announced that Joseph Otting, former comptroller of the currency, will replace Alessandro DiNello as CEO. DiNello, who was named CEO less than a week ago, will now become non-executive chairman.

Mnuchin, Otting, Hudson Bay's Allen Puwalski and Reverence's Milton Berlinski will fill four new board seats.

The new investment should help ensure NYCB has a sufficient capital cushion if it is required to set aside more money in reserves, Mnuchin said in a statement Wednesday.

What remains to be seen is whether customers keep their money in the bank given recent events. In an update last month, the bank said deposits were holding steady and had even increased slightly in the final quarter of 2023. That update came after NYCB reported a surprise loss last quarter, partly due to real estate loans deteriorated commercials.

Then last week, the bank said in a filing that it had identified a “material weakness” in the company's controls. The issues caused a $2.4 billion loss to shareholders last quarter, NYCB said.

It delayed releasing its required annual financial disclosure to focus on addressing the issues it identified. The bank said it now expects to submit its annual report by March 15. Unless the company provides a further update, that report will be the most recent source of information on whether depositors are withdrawing their funds. The delay draws disturbing parallels with First Republic Bank, which postponed reporting its quarterly results shortly before going bankrupt last year.

Similarly, First Republic Bank needed emergency cash injections shortly before it collapsed.

Chiaverini said there is good reason to believe depositors have been withdrawing their funds given the stock has fallen nearly 70% since its January earnings report. Additionally, Moody's Investors Service and Fitch Ratings recently downgraded NYCB to junk status. This is important because many depositors often require banks to have higher credit ratings, considered “investment grade,” to keep their money there.

Chiaverini told CNN he saw the deal as a way for the bank to help “reset” its credit rating.

NYCB did not respond to CNN's request for comment, the US Treasury Department and the Office of the Comptroller of the Currency declined to comment.

Earlier in the day, shares fell below $2 per share and approached the lowest price the stock has ever traded at.

“You should feel better about the company's survival,” KBW CEO Christopher McGratty told CNN after the infusion.

Clarification: NYCB updated its statement to clarify that one of the group members invests in the bank. This is Citadel Global Equities.

This story has been updated with additional developments and context.

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