Steven Mnuchin, other investors pour $1.1 billion into faltering New York Community Bancorp
New York Community Bancorp Inc. last month rebranded all of its branches under the Flagstar name. Credit: Jeff Bachner
Investors, including a former U.S. Treasury secretary, have agreed to pour nearly $1.1 billion into struggling New York Community Bancorp Inc., the Hicksville-based lender announced on Wednesday after its stock plunged on the New York Stock Exchange and trading was halted briefly.
After trading resumed, NYCB shares shot up, closing at $3.46. They had been as low as $1.70 earlier in the day.
The largest chunk of the cash infusion — $450 million — will come from Liberty Strategic Capital, a Washington, D.C.-based private equity firm. Its founder, Steven Mnuchin, treasury secretary under then-President Donald Trump, will become an NYCB board member.
The other big investors are Hudson Bay Capital, with offices in Manhattan and Greenwich, Connecticut, which will put in $250 million, and Reverence Capital Partners, also in Manhattan, $200 million.
WHAT TO KNOW
- New York Community Bancorp Inc. announced on Wednesday that it has received a cash infusion of nearly $1.1 billion from several investment firms.
- The Hicksville-based lender said it was changing its CEO for the second time in a week.
- The company's stock price has been hammered since it announced in late January that it unexpectedly lost money in the October-December period and was cutting its dividend.
The investment's size and Mnuchin's involvement should reassure stockholders and depositors that the NYCB ship can be righted, according to Anoop Rai, a finance professor at Hofstra University's Frank G. Zarb School of Business.
"The chances are that it's going to survive because of this cash infusion," he said. "And the question is are they going to need more" money.
Rai and others said NYCB is weighed down by commercial real-estate mortgages which have become risky as office buildings become vacant due to remote work. The bank also must comply with stricter regulations because it became larger with the 2022 purchase of Michigan-based Flagstar Bank and last year's purchase of some assets of Signature Bank after its takeover by federal regulators.
Under the deal, which is expected to close on Monday, the new investors will receive common stock valued at $2 per share and preferred stock that pays a quarterly dividend, with each preferred share equal to 1,000 shares of common stock.
Rai said NYCB's regulator, the federal Office of the Comptroller of the Currency, likely approved the cash infusion before it was disclosed and the generous terms for the investors.
"I was expecting [NYCB] to fail...this cash infusion changes the dynamics," said Rai, who studies banking and international finance.
A bank spokeswoman didn't respond to a request for comment by Newsday.
Also on Wednesday, NYCB, which recently rebranded all branches under the Flagstar name, announced its second CEO in about a week.
Joseph Otting, comptroller of the currency in the Trump administration, will succeed Alessandro "Sandro" DiNello.
DiNello, who ran Flagstar for years, took the NYCB helm on Feb. 29 from Thomas R. Cangemi, who resigned. DiNello now will return to his former position as non-executive chairman of the board.
In a statement, DiNello lauded Mnuchin for assembling the investment group, saying the new cash "is a positive endorsement of the turnaround that is underway and allows us to execute on our strategy from a position of strength. We enter this next chapter with a strong balance sheet and liquidity position supported by a diversified and retail focused deposit base."
Mnuchin said in a statement, "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."
Earlier on Wednesday, trading in NYCB shares was halted after they plunged more than 42% as investors responded to reports that the bank was seeking a cash infusion.
NYCB shares have been on a roller-coaster since Feb. 29 when the lender said it was reducing its 2023 earnings by $2.4 billion because of poor loan review procedures and other operational problems.
The stock closed up 49 cents, or 18% to $3.22 per share on Tuesday in what one expert called a "dead cat bounce," correctly predicting another sell-off on Wednesday.
Shares were trading above $10 in late January before NYCB disclosed an unexpected loss for the October-December period and a cut in its dividend.
“NYCB grew too fast, maybe got too big for its britches,” said Michael B. Imerman, assistant professor of teaching in finance at the University of California-Irvine's Paul Merage School of Business. “The $2.4 billion charge that the bank took means it’s writing off more than 2% of its assets. That freaked out investors,” he said.
Still, Imerman, whose research focuses on banks, risk management and fintech companies, said depositors with federally-insured accounts shouldn’t be alarmed.
“There is no need for them to panic …Their money isn’t going anywhere,” he said on Tuesday.
WHAT TO KNOW
*New York Community Bancorp Inc. announced on Wednesday that it has received a cash infusion of nearly $1.1 billion from several investment firms.
*The Hicksville-based lender said it was changing its CEO for the second time in about one week.
*The company's stock price has been hammered since it announced in late January that it unexpectedly lost money in the October-December period and was cutting its dividend.
James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.
'I'm going to try to avoid it' A trip to the emergency room in a Long Island hospital now averages nearly 4 hours, data shows. NewsdayTV's Virginia Huie reports.
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