After days of liquidity concerns, the struggling regional bank reached an agreement with several investment firms to shore up its balance sheet and restore client and shareholder confidence.
NYCB confirmed on March 6 that it will receive more than $1 billion from several investment firms, including Hudson Bay Capital, Reverence Capital Partners, and former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital.
In addition to the sizable cash injection, the company will add four new directors to its board. Mr. Mnuchin and Joseph Otting, the former comptroller of the currency, will become board members.
“In evaluating this investment, we were mindful of the Bank’s credit risk profile,” Mr. 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.”
The former White House official noted that new management and the “appropriate actions” to stabilize the company will support long-term profitability.
“We are confident that NYCB is poised to generate sustainable shareholder value,” Mr. Mnuchin said.
Non-Executive Chairman Sandro DiNello assured investors that the new leadership team and the reconstituted board would “continue to take the actions that are necessary to improve earnings, profitability, and drive enhanced value for shareholders.”
Banking Turbulence
It has been a turbulent start to 2024 for New York Community Bank.The company’s fourth-quarter earnings report was disappointing. NYCB slashed its dividend and posted a loss that was later upwardly revised to $2.7 billion. In recent weeks, the firm has identified “material weakness” in internal controls and announced high-level personnel changes.
Market analysts have feared that NYCB would be the subsequent bank failure one year after the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank. Experts have cited the firm’s high concentration in commercial real estate, the high percentage of uninsured deposits, and credit and outlook downgrades by Fitch Ratings and Moody’s Investor Service.
Since Jan. 31, NYCB shares have plummeted as much as 80 percent to less than $2.
The challenges facing NYCB may have surprised financial regulators because it acquired most of Signature’s assets out of receivership from the Federal Deposit Insurance Corporation.
Fears Temporarily Subside
Washington might be breathing a sigh of relief about NYCB’s new capital and management.Over the past month, top officials have accepted the stresses gripping the commercial real estate sector but have shrugged off how much they could impact the financial system.
Federal Reserve Chair Jerome Powell appeared before the House Financial Services Committee on March 6. He reiterated that commercial real estate pressures are a “manageable problem” that will not threaten the banking sector. However, he warned that the CRE issues could take “several years” to resolve.
In a recent interview with CBS’s “60 Minutes,” Mr. Powell dismissed concerns that the United States will experience a real estate-led banking crisis.
“It doesn’t appear to have the makings of the kind of crisis things that we’ve seen sometimes in the past, for example, with the global financial crisis,” he said, adding that some banks will “have to be closed or merged out of existence because of this.”
Treasury Secretary Janet Yellen also told the House Financial Services Committee last month that she is “concerned” but believes it is “manageable.”
“Although there may be some institutions that are quite stressed by this problem,” Ms. Yellen said in front of lawmakers.
Whether the NYCB news means the end of any banking or CRE panic remains to be seen. Plenty of underlying issues still bombard the industries.
“The lack of transactions and other activity last year, coupled with built-in extension options and lender and servicer flexibility, has meant that many loans that were set to mature in 2023 have been extended or otherwise modified and will now mature in 2024, 2026, 2028 or in other coming years,” said Jamie Woodwell, head of commercial real estate research at MBA.
“These extensions and modifications have pushed the amount of CRE mortgages maturing this year from $659 billion to $929 billion,” he added.
“Our analysis, reflecting market conditions up to 2023:Q3, reveals that CRE distress can induce anywhere from dozens to over 300 mainly smaller regional banks joining the ranks of banks at risk of solvency runs,” the paper stated. “These findings carry significant implications for financial regulation, risk supervision, and the transmission of monetary policy.”
For now, traders are relieved, as the SPDR S&P Regional Banking ETF, an investment fund exposed to regional banks, turned positive toward the end of the day.
