Former Treasury Secretary Steven Mnuchin stepped in to save New York Community Bank on Wednesday, leading a group of investors who injected over $1 billion into the struggling lender due to its exposure to a weakening real estate market and internal management errors.
Mr. Mnuchin, through his private equity firm Liberty Street Capital, contributed $450 million, with other investors, including billionaire Kenneth Griffin’s hedge fund Citadel, providing the rest. As part of the deal, NYCB will have its third chief executive in a month — Joseph Otting, a longtime banking executive and close associate of Mr. Mnuchin.
The infusion of new funds aims to stabilize a bank that has faced numerous challenges this year, drawing the attention of regulators in Washington seeking to prevent another banking crisis following the collapse of Silicon Valley Bank one year ago.
Mr. Mnuchin, a seasoned Wall Street professional who served as Treasury secretary under President Donald J. Trump, stated on Wednesday that while he was cautious about the bank’s credit risk, he believed NYCB had a solid foundation for future growth.
Troubles at New York Community Bank began when it reported a $240 million loss in its latest earnings report in January, mainly due to real estate loans, as the market continues to soften with high vacancy rates in apartments and office buildings due to the increase in remote work. The bank also suffered from its significant exposure in loans to rent-regulated apartments, whose values declined due to restrictions on property improvements.
The unexpected results shocked analysts and investors, causing a rapid decline in its stock price and raising concerns about its financial stability. Just last week, NYCB replaced its CEO, Thomas R. Cangemi, after revealing billions of dollars in additional write-downs and announcing an investigation into the accuracy of earlier financial disclosures. Several credit rating agencies also downgraded the bank.
The Long Island-based bank, with over 400 branches including Flagstar Bank, a major mortgage servicer, expanded rapidly over the past year after acquiring assets from Signature Bank, which collapsed during last year’s banking crisis.
Mr. Cangemi, who oversaw NYCB’s acquisition of Signature assets before resigning, attributed the recent challenges to the pressures of rapid growth. He mentioned that the bank had to comply with regulations that it wouldn’t have faced as a smaller institution.
David Smith, a researcher at Autonomous, initially viewed Wednesday’s news as a “desperate” move by NYCB but later saw it as “the brightest ray of hope” the bank had seen in months.
Mr. Otting, the new CEO, and Mr. Mnuchin have a longstanding relationship. In 2010, Mr. Otting was appointed to lead OneWest, a struggling California lender that Mr. Mnuchin and others had acquired after the 2008 financial crisis. Mr. Otting left OneWest in 2015 when CIT Group purchased it.
In 2017, Mr. Otting became the comptroller of the currency, overseeing a key regulator in the banking industry while Mr. Mnuchin served as Treasury secretary.
Mr. Otting was a controversial figure in government, clashing with other regulators and drawing criticism for proposals that opponents argued would weaken rules requiring banks to invest in underserved communities and lend to low-income individuals.
The investment deal came together swiftly over the past five days, according to a person involved in the negotiations. Private equity firms Hudson Bay and Reverence Capital are among the investors in the transaction. Mr. Mnuchin and Mr. Otting will join the bank’s board, along with representatives from the two private equity firms.
The Wall Street Journal previously reported that NYCB was seeking capital infusion, causing its stock to plummet and prompting a trading halt by the New York Stock Exchange. However, after the bank’s public announcement of the restructuring, NYCB’s stock surged and then dropped, ending the day with a 7% gain. Despite this, the stock remains down nearly 67% for the year.
As of last month, NYCB had $83 billion in deposits and over $100 billion in total assets. Flagstar is a major mortgage servicer, linking the bank’s fate closely to the housing market.
