(Bloomberg) – Commercial real estate lender New York Community Bancorp receives more than $1 billion in equity investment, earning a vote of confidence in the troubled lender from investors including former U.S. Treasury Secretary Steven Mnuchin. did.
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NYCB said in a statement Wednesday that Mnuchin’s Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners led the capital injection, confirming an earlier Bloomberg News report. After the announcement, stock prices erased their earlier plunge.
“We kept the bank’s credit risk aspects in mind when evaluating this investment,” Mnuchin said in a statement. “With more than $1 billion of capital invested in the bank, we will have sufficient capital should we need to increase our reserves in the future to match or exceed coverage ratios of large NYCB banks. That’s what I think.”
NYCB also named former Comptroller of the Currency Joseph Otting as its new chief executive officer. Otting will succeed Alessandro Dinero, who was appointed CEO on February 29. Mr. Dinero will remain as non-executive chairman.
Mr. Mnuchin and Mr. Otting have worked together in similar capacities before. Mr. Mnuchin led a group of billionaires who bought IndyMac, a mortgage company that went bankrupt in the wake of the 2008 financial crisis. After changing the company to OneWest, he hired Otting as CEO.
Read more: NYCB soars despite real estate industry warnings in years leading up to fall
Liberty counts Saudi Arabia’s Public Investment Fund among its backers and plans to invest $450 million. Other investors include Hudson Bay with $250 million and Reverence with $200 million, according to the statement. Citadel Global Equities, the equity arm of Ken Griffin’s hedge fund, is also an investor. In connection with this transaction, NYCB will add four new directors to its board of directors, including Mr. Mnuchin and Mr. Otting.
Read next: NYCB swells despite real estate warnings in years leading up to fall
“The investment community has lost confidence in the company. Nothing improves confidence like capital,” said Johnny Montgomery Scott analyst Chris Marinak, who rates the stock a “buy,” by phone. He spoke at The new leader is exactly what the company needs, he added.
capital injection
Investors will purchase common stock at $2 per share and some convertible preferred stock at a conversion price of $2, raising a total of $1.05 billion. The group will also acquire stock acquisition rights at an exercise price of $2.50 per share.
NYCB stock closed the day up 7.5% to $3.46. Still, the company’s stock has lost about two-thirds of its value this year as the bank cut its dividend and built higher-than-expected provisions for loan losses. The company announced last week that it had replaced its chief executive officer and identified “significant weaknesses” in the way it tracks loan risk.
Milton Berlinsky of Reverence Capital, who will join the board of directors, said in a statement: “We are excited to invest with this management team behind such a strong group of investors, and we believe NYCB has the ability to reposition the company. “We believe we have a great opportunity to return to growth.”
NYCB is the primary lender to apartment owners subject to New York’s strict rent laws, and there are limits to how much revenue it can generate. It also provided funding to local offices struggling with vacancies in the work-from-home era.
Credit rating agencies have downgraded the company to junk status, and Moody’s Investors Service expects the bank may set aside more capital over the next two years to protect against loan deterioration.
Bloomberg Intelligence says:
New York Community Bancorp’s $1 billion equity investment from former Treasury Secretary Steven Mnuchin’s company should ease lenders’ concerns about its capital levels and management ability. The new CEO, Joseph Otting, is a former OCC chief. Although NYCB’s junk-rated subordinated debt is trading at distressed levels, the increase in capital will help absorb a potential increase in loan loss reserves if commercial real estate conditions worsen.
Arnold Tsunoda and Nick Beckwith, Bloomberg Intelligence
Some of the pressure on NYCB has been exacerbated by its rapid growth through acquisitions in recent years. The acquisition of rival financial firms Flagstar Bancorp and parts of Signature Bank nearly doubled the company’s size. As assets ballooned past $100 billion, NYCB faced stricter capital requirements for so-called Category IV banks, given their systemic importance.
The equity investment agreement is expected to be completed around March 11th. Jefferies is the financial advisor and sole brokerage agent for NYCB, according to the statement.
“While this is a blow to existing shareholders, it should allay systemic concerns for NYCB,” Keefe, Bruyette & Woods analyst Christopher McGratty said in a note. “This should help broad sentiment towards the banking group.”
–With assistance from Terrell Holt and Daniel Taub.
(Updates details about Mnuchin and Otting starting in fifth paragraph.)
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