Finance

NYCB shares rebound after troubled regional bank announces $1 billion capital raise

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Struggling New York Community Bancorp announced a $1 billion capital raise and a leadership shakeup on Wednesday, headlined by former Treasury Secretary Steven Mnuchin.

NYCB has agreed to a deal with several investment firms including Mnuchin’s Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners for over $1 billion in exchange for equity in the regional bank, according to a press release on Wednesday afternoon.

Mnuchin will be one of four new members the bank’s board of directors as part of the deal. Joseph Otting, former comptroller of the currency, is also joining the board and taking over as CEO.

Reuters and The Wall Street Journal reported earlier Wednesday that the bank was looking to outside investors for cash to shore up its balance sheet. The stock was halted for news pending when shares were down 42%.

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Shares of NYCB fell sharply on Wednesday.

Shares of the bank were already down sharply the day before the reports. The stock is now below $2 per share after starting the year above $10.

A cash infusion would be the latest development in a turbulent start to the year for NYCB. The bank disclosed in late January that it was dramatically raising the allowance for potential loan losses on its balance sheet, with its exposure to commercial real estate being a potential issue. That was followed shortly by Moody’s Investors Service downgrading the bank’s credit rating to junk status, and NYCB naming former Flagstar bank CEO Alessandro DiNello as executive chairman.

Then last week, NYCB disclosed that it had “identified material weaknesses in the company’s internal controls related to internal loan review” and announced that DiNello was taking over as CEO, for what proved to be a brief tenure.

The questions surrounding NYCB are reminiscent of those that swirled around Silicon Valley Bank, Signature Bank and First Republic before all three failed in the spring of 2023. They were among several regional banks that struggled as higher interest rates pushed down the value of older Treasury holdings and led some depositors to move their accounts elsewhere.

With the U.S. economy continuing to show surprising strength and inflation still above the Federal Reserve’s 2% target, traders have been dialing back expectations for interest rate cuts this year. The higher-for-longer rate environment could keep pressure on the banks themselves and on commercial real estate, which is a key business for NYCB and many other regional lenders.

The struggles for NYCB may have caught regulators off guard as well as investors. The regional lender acquired much of Signature Bank out of receivership from the Federal Deposit Insurance Corporation last March.

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