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New York Community Bank will raise more than $1bn in a deal led by the investment firm of former US Treasury secretary Steven Mnuchin, in an effort to shore up its finances and calm fears after weeks of turmoil surrounding the bank.
The regional lender also appointed Joseph Otting, a former Comptroller of the Currency in the Donald Trump administration, as its new chief executive. Otting replaces Alessandro DiNello, who became CEO of the bank less than a week ago and will return to a previous role as non-executive chair. Mnuchin is also joining the board.
Mnuchin said: “With the over $1bn 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.”
NYCB’s shares had plunged more than 40 per cent earlier on Wednesday, before being halted at $1.86 for the announcement, after a report about the potential stock sale. The stock, rebounded on the news of the deal, almost doubling from its lows, but is still down about two-thirds since the end of January. The shares closed up more than 7 per cent.
The latest fall in NYCB’s stock was not echoed in the wider regional banking sector. The KBW Regional Bank index, which includes NYCB, was down just 0.4 per cent on Wednesday afternoon.
The investor group will purchase NYCB’s common stock at a price of $2 per share and convertible preferred stock at the same conversion price, according to a press release. It will also receive warrants to buy additional non-voting shares at $2.50 per share.
Mnuchin’s firm, Liberty Strategic Capital, is being joined by other investors including Hudson Bay Capital, Reverence Capital Partners and hedge fund Citadel. The group cautioned that its $1.05bn total investment was subject to “finalisation of definitive documentation and receipt of applicable regulatory approvals”.
Mnuchin started Liberty in 2021 after leaving the Trump administration. It has raised more than $2.5bn and struck a handful of small deals, including building a minority stake in movie studio Lions Gate Entertainment and four cyber security companies. Liberty’s backers include SoftBank and Saudi Arabia’s sovereign wealth fund.
Reverence Capital, founded by three former Goldman Sachs executives, is led by Milton Berlinski, who founded the investment bank’s financial institutions group and has targeted mid-sized financial services deals.
DiNello said the involvement of Mnuchin, Otting and Berlinski was “a positive endorsement of the turnaround that is under way and allows us to execute on our strategy from a position of strength”.
In 2009, Mnuchin led a group of private equity investors that bought IndyMac, a mortgage lender that failed in the 2008 financial crisis, from the Federal Deposit Insurance Corporation. After the deal closed, Otting was named chief executive of the bank, which was renamed OneWest and later sold to CIT.
Shares of NYCB have been under pressure since late January, when the bank reported a surprise loss of hundreds of millions of dollars. Moody’s cut the company’s credit rating over the weekend to junk status, days after the lender disclosed it had replaced its chief executive and identified “material weaknesses” in internal controls that guide how loans are reviewed.
NYCB is working with Jefferies as a financial adviser. Its legal advisers are a team lead by Sven Mickisch, a Skadden Arps partner who was recently hired by Simpson Thacher.
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