New York Community Bank raises $1 billion in emergency funding
New York Community Bank, the midsize lender under pressure over its real estate lending and internal management, announced an overhaul Wednesday that included more than $1 billion in emergency funding, the addition of former Treasury Secretary Steven Mnuchin to its board of directors and the appointment of its third CEO in a month.
The deal was an attempt to prop up a bank that has lurched from shock to shock this year, and caught the attention of Washington regulators eager to avoid another banking crisis just before the one-year anniversary of Silicon Valley’s collapse Bank.
The more than $1 billion investment includes cash from Mr. Mnuchin’s private equity firm, Liberty Strategic Capital, and Kenneth Griffin’s Citadel Global Equities, among others.
The bank’s new CEO, Joseph Otting, has worked closely with Mr. Mnuchin in the past. He led OneWest Bank, then owned by Mr. Mnuchin, for five years. During the Trump administration, he also oversaw the Office of the Comptroller of the Monet, one of the banking industry’s top regulators.
Mr. Otting was a controversial figure in the administration, feuding with other regulators and angering critics who said his proposals would have gutted rules requiring banks to invest in poor communities and lend to low-income individuals.
New York Community Bank’s troubles began when the bank posted a $240 million loss in its most recent earnings report in January, mostly related to investments in apartments and office buildings, which surprised analysts and investors and sent stock prices tumbling. plummeted.
Just last week it replaced its CEO after disclosing billions of dollars in additional writedowns dating back to 2008, and said it would investigate whether years of previous financial disclosures had been accurate. Several credit rating agencies have also downgraded the bank.
The Long Island-based lender, which operates more than 400 branches including Flagstar Bank, grew rapidly over the past year after acquiring much of the assets of Signature Bank, another bank that collapsed during last March’s banking crisis.
Thomas R. Cangemi, who led NYCB’s purchase of Signature assets as CEO before resigning last month, publicly blamed the pressure to grow so big so quickly for the recent problems. He said it was forced to comply with regulations to which it would not have been subject as a smaller bank.
Mr. Mnuchin, a Trump administration official, said in a statement that while he was “aware of the bank’s credit risk profile,” he believed NYCB had “a strong foundation for future growth.”
It remains to be seen whether the moves will work. The bank’s shares plunged earlier Wednesday when The Wall Street Journal reported it was looking to raise capital. The New York Stock Exchange subsequently halted trading of the shares, but when trading resumed following the bank’s public announcement of the overhaul, NYCB’s shares rose and then fell to flat for the day.
This year they are almost 70 percent behind.
NYCB had $83 billion in deposits and more than $100 billion in total assets last month. Flagstar is one of the country’s larger mortgage servicers and ties the bank’s fortunes relatively closely to that of the housing market.