NYCB Raises More Than $1 Billion in Equity Led by Steven Mnuchin’s Firm

(Bloomberg) — Commercial real estate lender New York Community Bancorp received an equity investment of more than $1 billion, gaining a vote of confidence in the struggling lender from investors including former US Treasury Secretary Steven Mnuchin.

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The capital injection was led by Mnuchin’s Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners, NYCB said in a statement Wednesday, confirming an earlier Bloomberg News report. The shares erased an earlier plunge after the announcement.

“In evaluating this investment, we were mindful of the bank’s credit risk profile,” Mnuchin said in the 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.”

Read More: NYCB Ballooned Despite Real Estate Warnings in Years Before Fall

NYCB also named Joseph Otting, the former comptroller of the currency, as its new chief executive officer. Otting replaces Alessandro DiNello, who became CEO on Feb. 29. DiNello will stay on as non-executive chairman.

Liberty, which counts Saudi Arabia’s Public Investment Fund among its backers, will invest $450 million. Other investors include Hudson Bay at $250 million and Reverence at $200 million, according to the statement. In connection with the deal, NYCB will add four new directors to its board, including Mnuchin and Otting.

NYCB shares have lost more than three-quarters of their value this year after the bank slashed its dividend and set aside more provisions than expected for loan losses. Last week, it announced it was replacing its chief executive officer and had identified “material weaknesses” in how it tracks loan risks.

“We are excited to be investing behind this management team with such a strong investor group, and believe NYCB has a great opportunity to reposition the company and return to growth,” Reverence Capital’s Milton Berlinski, who’s joining the board, said in the statement.

Read this next: NYCB Ballooned Despite Real Estate Warnings in Years Before Fall

What Bloomberg Intelligence Says:

New York Community Bancorp’s $1 billion equity investment from firms led by former Treasury Secretary Steven Mnuchin should ease concerns about the lender’s capital levels and management capabilities. New CEO Joseph Otting was the former head of the OCC. While NYCB’s junk-rated subordinated debt trades at distressed levels, higher capital will help absorb potential loan loss reserve increases if commercial real estate conditions worsen.

Arnold Kakuda and Nick Beckwith, Bloomberg Intelligence

NYCB is a major lender to owners of apartment buildings subject to tough New York rent laws, limiting the revenue units can generate. It also financed offices in a region beset by vacancies in the work-from-home era.

Credit-rating firms have slashed the company’s grades to junk, with Moody’s Investors Service predicting the bank may set aside more money for souring loans over the next two years.

Some of the pressure on NYCB was exacerbated by its rapid growth through acquisitions in recent years. Takeovers of rival lender Flagstar Bancorp and parts of Signature Bank almost doubled the firm’s size. As its assets swelled beyond $100 billion, NYCB faced more stringent capital requirements for so-called Category IV banks in light of their systemic importance.

–With assistance from Terrell Holt.

(Adds Mnuchin’s comment in third paragraph.)

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