New details have emerged about
Late Monday, the troubled regional lender issued a press release packed with information about
The transaction, which closed Monday, is led by Liberty Strategic Capital, the investment firm run by former Treasury Secretary Steven Mnuchin. Funds managed by Hudson Bay Capital Management and Reverence Capital Partners are among the other investors that are participating. Combined, the new investors are positioned to own about 39.6% of the company "on a fully diluted basis," the release said.
Joseph Otting, a former comptroller of the currency who is New York Community's incoming CEO, will receive 15 million shares of common stock at an exercise price of $2 per share, as part of an "employment inducement award," according to the release. The stock will vest over the next three years, and it would vest at an accelerated rate upon a change in control of the company before the final vesting date, the release said.
Meanwhile, Mnuchin will serve as the lead independent director on New York Community's board. The board will now be a group of 10, up from the nine directors announced last week, with the additional seat to be occupied by Lawrence Savarese, whose name was not included in last week's announcement about members of the reconfigured board.
Savarese has been on New York Community's board since 2013. He most recently served as chair of the bank's audit committee, and he also served on its compensation and corporate governance committees.
Savarese is one of only two members of New York Community's board prior to its 2022 acquisition of Flagstar Bancorp to be retained in the latest shake-up. Four onetime members of Flagstar's board will serve on the newly constituted board, as will Otting, Milton Berlinski, managing partner of Reverence Capital, and Allen Puwalski, who was recommended by Hudson Bay.
Before their roles in the Trump administration, Mnuchin and Otting were part of a team that turned around OneWest Bank, which emerged from the failure of IndyMac Bank. Puwalski is a former OneWest director and the former head of community bank strategy at SoFi Technologies, according to his LinkedIn profile.
New York Community's board now includes just one woman — Jennifer Whip — who joined Flagstar's board in 2017. Before the reorganization, there were three women on the company's board.
Long Island-based New York Community did not respond to questions about why Savarese was added back to the board, or whether Marshall Lux, who joined New York Community's board in February 2022 and was named "presiding director" last month, will retain that title now that Mnuchin has been named lead independent director.
Analysts who cover New York Community, which has $114 billion of assets, were busy digesting the latest developments on Tuesday.
"It's not common to see deals like this, especially deals that represent so much ownership of the company and especially with these terms," said Wedbush Securities analyst David Chiaverini.
New York Community has been in
Last month, the bank identified "material weaknesses" in the internal controls that it was using to review loans. Such weaknesses stem from "ineffective oversight, risk assessment and monitoring activities," the bank said at the time.
In recent weeks, the company has also hired a new chief risk officer and a new chief audit executive. The individuals who were previously in those jobs left the company earlier this year.
All the while, questions have swirled about the quality of the company's commercial real estate portfolio, particularly its multifamily loans. As of Tuesday, shares in New York Community were down more than 66% year to date.
The structure of the capital injection is complicated. It involves the creation and issuance of additional common stock, plus two new series of preferred stock — Series B and Series C — that were issued when the deal closed. Yet another new series of preferred stock, Series D, is related to warrants issued by the investment group.
The company must seek approval from its shareholders to increase the total authorized shares of common stock, which is likely to happen during the next shareholders meeting, analysts said.
New York Community must also get shareholders' blessing for a reverse stock split of at least one to three, which would "make the bid price more attractive to a broader group of institutional and retail investors," according to the bank's press release. A reverse stock split is a tactic that banks can employ when their shares are trading at low figures, and they want the prices to look higher, Chiaverini said.
"It's the optics of it," he said. "Companies don't want their stocks to be trading at low dollar figures."
The deal announced last week is significantly dilutive to existing shareholders. For example, an existing shareholder with 72 million shares previously owned 10% of the company, according to Jefferies analyst Casey Haire. Today, that's down to 6%, he said.
"No one likes to be diluted 40%, but the alternative could have been zero and a 100% loss, so it's the lesser of two evils," Haire said.
Analysts are now waiting for New York Community's annual report, which is expected to be filed this week. Its release was delayed so that the company could finish
Peter Winter, an analyst at D.A. Davidson, said that he will be looking in the annual report for an update on both those weaknesses and on the controls that have been put in place. He is also wondering whether the bank will report larger loan-loss reserves and more charge-offs now that a new chief risk officer is in place.
After the annual report is released, attention will likely turn to the company's first-quarter earnings report, which is expected to be released in April, and the release of a new business plan.
During a call last week to discuss the capital injection, New York Community executives said they needed more time to revise the company's strategy.
In the longer run, there remain lots of questions about the bank's future, Winter said.
"The lingering question … is whether the capital infusion of $1 billion is enough," he said. "As they fully go through the loan portfolio, will they find more problems than what they're expecting?"
