Steven Mnuchin leads $1 billion attempt to rescue NYCB

In an audacious bid to restore investor confidence, New York Community Bank (NYCB) has disclosed the appointment of a new CEO and revealed a formidable injection of $1 billion. This substantial infusion of capital originates from a collective of financiers, central among them being Steven Mnuchin, a noted former Treasury Secretary.

The unveiling of these calculated manoeuvres on Wednesday, follows an alarming fall in the bank’s share price, which plunged to an abyssal low of 45%. The critical fall was precipitated by circulating speculations about NYCB actively courting investors willing to acquire company shares.

However, the fallout appeared to be mitigated by the subsequent announcement of the $1 billion deal, owing to which the bank’s stocks staged an astounding recover, surging by an impressive 18%, and eventually finished the day on a high note, up by over 7%.

The consortium of firms rallying to the cause comprises Liberty Strategic Capital, quite notably founded by Mnuchin himself in the year 2021. Other noteworthy entities include Hudson Bay Capital, Reverence Capital Partners, and Citadel Global Equities.

These firms, alongside certain bank executives, shall procure both common and convertible-preferred stock to effectively direct the course of this Hicksville, N.Y.-headquartered company.

The transformative deal is also poised to bring in a seismic shift in the organization’s leadership with the advent of Joseph Otting, formerly Comptroller of the Currency, who is slated to ascend to the position of NYCB’s new CEO, making him the third individual to hold the esteemed title within a matter of a few weeks.

The transaction, pending regulatory approvals, is expected to be sealed by March 11.

Explaining the logic behind his investment, Mnuchin elucidated, “In evaluating this investment, we were conscious of the bank’s credit risk profile.” He further disclosed that Liberty Strategic Capital will be contributing $450 million, surpassing other investors.

Mnuchin, who also held the position of Treasury Secretary under former President Donald Trump and has served as a partner at Goldman Sachs, has been instrumental in rescuing another beleaguered bank in the past.

In a similar scenario dating back to 2009, he was a pivotal part of a consortium that strategically acquired California’s mortgage lender, IndyMac Bank, post its seizure by the federal government amid the financial cataclysm of 2008. Upon their successful takeover, the bank was rechristened as OneWest and Otting was recruited to steer its turnaround. Ultimately, OneWest was sold to CIT Bank, realizing gains in excess of $3 billion.

This new rescue of NYCB is accompanied by a sweeping overhaul of NYCB’s leadership. Otting, in becoming CEO, succeeds Alessandro DiNello, holding his place since Feb. 6 and officially appointed CEO last week subsequent to the departure of the long-serving CEO, Thomas Cangemi. DiNello will assume the role of a non-executive chair whilst heading a leaner, nine-member board populated with several fresh faces, including Mnuchin, Otting, Allen Puwalski from Hudson Bay and Milton Berlinski representing Reverence Capital.

“We appreciate the evaluative approach Liberty and its allies have employed in analyzing the bank and we eagerly anticipate incorporating their insights into our future proceedings,” voiced DiNello. This is indeed a “prime affirmation of the strategic turnaround in progress and empowers us to execute our strategy underpinned by a reinforced potency.”

The anxiety at Silicon Valley Bank originated last March following the sale of its assets at a loss, posing a significant challenge in raising requisite capital.

“When you unload assets, you are inherently incurring losses and it’s decidedly more beneficial to have adequate capital in place prior to disposing of assets,” iterates Chris Marinac, an analyst at Janney covering the bank.