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The number of problem banks in the US has jumped by 18 per cent, regulators warned, as New York Community Bank was stabilised by a $1bn capital raise led by former US Treasury secretary Steven Mnuchin.
Twelve months after the failure of Silicon Valley Bank shook the regional banking sector, NYCB’s recent struggles have underscored the continuing fragility at some US lenders.
The Federal Deposit Insurance Corporation said on Thursday that the number of weak US banks had risen by eight to 52 in the final three months of 2023, the biggest jump since the demise of SVB.
Delinquencies in credit card and commercial real estate loans were on the rise, the FDIC said, and were now at the highest level in almost a decade.
FDIC chair Martin Gruenberg said in a statement that “ongoing economic and geopolitical uncertainty, continuing inflationary pressures, volatility in market interest rates, and emerging risks in some bank commercial real estate portfolios pose significant downside risks to the banking industry”.
NYCB, a midsized US lender with more than $100bn in assets, which was not on the FDIC list, was stricken by losses in its real estate loan portfolio after it almost doubled in size in the past 18 months through two quick-fire deals for rival banks.
Its shares rose on Thursday after its new management team told analysts it would diversify away from loans to apartment buildings, many of which are subject to New York’s strict laws on rent control and provided many of the bank’s problems.
Mnuchin and Joseph Otting, the former regulator who has taken over as NYCB chief executive, have a history of rebuilding troubled lenders: they bought failed mortgage lender IndyMac from the FDIC in 2008, restructured it and sold it to CIT in 2015.
Investors including Mnuchin, a former Goldman Sachs banker who served in the Trump administration, stand to make hundreds of millions of dollars of paper profits if the shares maintain their gains after the capital raise was announced.
Their injection of funds at $2 a share was “tremendously dilutive” to other shareholders, analysts at Wedbush noted, but helped stabilise the bank and boost the stock price. The shares were trading 8 per cent higher at $3.74 by Thursday afternoon, still more than 60 per cent down this year.
Hudson Bay Capital, Reverence Capital Partners and hedge fund Citadel are co-investing in the deal which closes on Monday.
Otting told analysts that his goal of diversification would see the bank prosper “through economic fluctuations” but he gave few details on how he would achieve that and said the transition could take years.
Bank of America analysts said the capital raise and new leadership should “provide breathing room” to the bank. “The actions should alleviate investor concerns about NYCB’s ability to navigate the current crisis,” they wrote.
The FDIC does not name the individual banks on the problem bank list. But the data indicated that the banks on the list were either small or mid-sized lenders. The total assets of all the banks on the problem bank list at the end of last year was $66bn, or about 0.2 per cent of the overall banking sector.
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