Former Trump administration officials Steven Mnuchin and Joseph Otting are part of an investment group that's providing $1 billion of capital in an effort to rescue the beleaguered New York Community Bancorp.
Otting, the former Comptroller of the Currency, will become the bank's CEO, while Mnuchin, the former Treasury secretary, will join its board, the company said Wednesday. Mnuchin's investment firm, Liberty Strategic Capital, is leading the deal by pumping in $450 million, while the investment firm Hudson Bay will invest $250 million, and Reverence Capital will provide $200 million.
Alessandro "Sandro" DiNello, the former CEO of Flagstar Bancorp, who was
"We decided to make this investment because we believe Sandro, alongside new management, has taken the appropriate actions to stabilize the Company," Mnuchin said in a news release, adding that the bank can be a "best-in-class" operation with a "diversified and de-risked business model."
DiNello said in the press release that the deal is "a positive endorsement of the turnaround that is underway and allows us to execute on our strategy from a position of strength."
The company said that it expects the deal to close on Monday, pending regulatory approvals of the roles for Otting and DiNello, plus other closing conditions.
Mark Fitzgibbon, a Piper Sandler analyst, said $1 billion seems like the "right amount" to handle potential problems in the company's loan book, sending a "strong message to the marketplace" that New York Community has ample capital.
"I feel like at a billion dollars, they can restructure the balance sheet, they can get rid of loans, they can do some cleaning up and they'll be just fine," Fitzgibbon said. "I would not anticipate they would need to raise any additional capital."
The takeover of New York Community reunites Otting and Mnuchin, who previously reaped massive financial gains from buying the failed subprime lender IndyMac Bank and then selling it six years later. The two would later be at the helm of the Trump administration's efforts to ease some of the post-2008 regulatory framework for banks.
"I can't think of a better team to go in and tackle a tenuous situation like New York Community," Fitzgibbon said, noting that the pair had success in taking an "institution on the brink of failure and turning it around."
Before the deal was announced on Wednesday, trading in New York Community shares was halted after the
New York Community's share price had been in free fall since late January, when the company slashed its dividend and reported risks in its real estate-heavy portfolio.
The $116 billion-asset company's troubles later deepened, with the company ousting former CEO Thomas Cangemi and reporting
Those acquisitions pushed New York Community above $100 billion in assets, which meant that tougher regulations were starting to apply. During the fourth quarter, the bank set aside a staggering $552 million provision to cover potential losses in its loan portfolio, which is dominated by rent-regulated New York City apartment buildings that
Investors had worried that more bad news would follow, drastically hampering the bank's profitability as it bulked up its reserves to meet regulators' expectations.
On Wednesday, Mnuchin said that the investment group is "mindful of the bank's credit risk profile" and thinks its capital infusion should cover any needs.
"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," Mnuchin said in the press release.
The company's board will be reworked, with Mnuchin and Otting joining the board and Hudson Bay's Allen Puwalski and Reverence Capital's Milton Berlinski also getting seats.
The board will be reduced to nine members, with some existing directors leaving their posts. The list of departing board members includes Cangemi, the former New York Community CEO who orchestrated its recent growth and had been at the bank since 2001.
The company said it will host a conference call with investors on Thursday morning.
Adam Mustafa, CEO of bank advisory firm Invictus Group, said Wednesday that he had been skeptical that New York Community would be able to raise the capital, given the "doom loop" of news that had enveloped the company in recent weeks.
Moving forward, Mustafa expects that New York Community's first goal will be survival. He added that he thinks Otting, as a former OCC head, will ensure top-notch risk management, and will likely work to shrink the bank.
Long Island-based New York Community Bancorp has a large concentration in loans on New York City apartment buildings with rent restrictions. Property values in that sector have tanked amid higher interest rates, inflation and 2019 revisions to state law.
Otting and Mnuchin previously teamed up in 2009 following the failure of IndyMac. The collapse of the Pasadena, California-based bank was one of the costliest bank failures in U.S. history.
Mnuchin led an investor group that bought IndyMac for $1.5 billion in an Federal Deposit Insurance Corp. auction. Under a loss-sharing agreement, the FDIC absorbed 95% of the losses on a portion of IndyMac's loan portfolio.
Otting was named CEO of the bank, which was renamed OneWest, and Mnuchin became its chairman. They began rebuilding the firm by taking over other failed banks, including First Federal Bank of California and La Jolla Bank.
In 2015, Otting and Mnuchin won approval from the Federal Reserve to sell OneWest to CIT Group for $3.4 billion. The deal was hugely profitable for both men and the private-equity and hedge-fund investors who owned the bank for six years.
