New York Community Bancorp, a struggling regional lender, unveiled a series of significant moves on Wednesday, including a $1 billion capital raise and changes in leadership, notably featuring former Treasury Secretary Steven Mnuchin. This development led to a notable uptick in the company’s stock price.
The capital infusion involves a deal with various investment firms, including Mnuchin’s Liberty Strategic Capital, Hudson Bay Capital, and Reverence Capital Partners, wherein they will invest over $1 billion in exchange for equity in the regional bank, as per a press release issued Wednesday afternoon.
As part of the arrangement, Mnuchin is set to become one of four new members of the bank’s board of directors. Additionally, Joseph Otting, former comptroller of the currency, will join the board and assume the role of CEO.
Following the announcement, NYCB’s stock experienced significant volatility, with shares briefly halted before jumping nearly 30% for the day. Despite some retracement in gains after trading resumed, the stock closed the day up more than 7% after several halts.
This capital raise comes amid a challenging period for NYCB. The company had faced a 42% decline in its stock price prior to the press release, triggered by reports of its exploration of a capital raise.
The stock had plummeted to below $2 per share on Wednesday, marking another setback for the company, which began the year with shares valued above $10 each.
The recent cash infusion adds to the turbulent start NYCB has had this year. It had previously disclosed a significant increase in the allowance for potential loan losses on its balance sheet, followed by a credit rating downgrade by Moody’s Investors Service to junk status. The company also underwent leadership changes, with Alessandro DiNello appointed as executive chairman.
The challenges faced by NYCB echo those experienced by other regional banks in recent times, notably Silicon Valley Bank, Signature Bank, and First Republic, all of which failed in the spring of 2023 due to struggles with higher interest rates affecting the value of Treasury holdings and deposit outflows.
With the U.S. economy displaying resilience and inflation exceeding the Federal Reserve’s target, the prospect of interest rate cuts has diminished, potentially prolonging pressure on banks like NYCB, especially considering their exposure to commercial real estate.
The recent difficulties encountered by NYCB may have caught regulators off guard, especially given its acquisition of parts of Signature Bank last March from the Federal Deposit Insurance Corporation’s receivership.