After witnessing its shares fall more than 80% this year, the troubled New York Community Bancorp said on Wednesday that it had received a lifeline of more than $1 billion from a consortium of investors.
After witnessing its shares fall more than 80% this year, the troubled New York Community Bancorp said on Wednesday that it had received a lifeline of more than $1 billion from a consortium of investors. (Photo : by Spencer Platt/Getty Images)
The news put the bank's shares on a wild trip. The bank has been hurt by a downturn in the commercial real estate market and growing pains from buying out a struggling bank. Following the news, the stock saw an almost 30% increase after nearly halving earlier in the day. However, it eventually gave up all of that and turned around, closing the day with a 7.5% gain.
The agreement would add four new directors to NYCB's board, including former US Treasury Secretary Steven Mnuchin. Under President Trump, the Treasury Secretary. The bank's CEO will be Joseph Otting, a former comptroller of the currency.
The agreement calls for the "finalization of definitive documentation" and regulatory clearances, according to the bank. Mnuchin's Liberty Strategic Capital, Hudson Bay Capital, and Reverence Capital Partners would each contribute $450 million, $250 million, and $200 million to NYCB. The bank stated that cash from more institutional investors and a portion of the management will account for the excess of $1 billion.
Along with convertible preferred shares that may pay dividends every three months, the investors will receive $2 worth of business stock.
Before its trading being suspended in the afternoon on Wednesday due to awaiting news, the bank's shares had dropped 42% to $1.86. According to a Wall Street Journal story earlier in the day, the lender was thinking about selling stock to raise money to boost its credibility.
NYCB's shares reversed those losses as soon as the $1 billion injection was announced, shooting up to its highest level in over a year. However, the stock gave up all of its gains almost as rapidly before rising before the close. At $3.46 at the conclusion of the day.
Other regional banks' stocks also shook as a result of the unease surrounding NYCB. Before the announcement, an index of regional bank stocks was down 3.1%; after the news, it was slightly up and then down 0.4% again.
Prior to last year, when it paid $2.7 billion to acquire the assets of Signature Bank at auction on March 19, NYCB was a comparatively obscure bank. During the mini-crisis that hit the sector last year, a bank run also expedited the failure of Silicon Valley Bank, and Signature was one of the institutions that failed.
Due to its abrupt growth, NYCB was subject to more regulatory scrutiny. One of the bank's difficulties has been convincing investors and depositors that it can handle the acquisition of Signature Bank in addition to managing a troubled real estate portfolio. Due to losses on loans related to commercial real estate, it was obliged to declare an unexpected loss for the most recent quarter, which alarmed investors.
The Hicksville, New York-based NYCB announced last week that it has discovered serious flaws in the way it internally assesses loans, which are the result of inadequate oversight, risk assessment, and monitoring procedures. As a result, it reorganized its senior management and postponed filing its annual report.
Following the downgrade of credit agencies' NYCB ratings, the bank faced further pressure.
Industry observers continue to dismiss the possibility of a banking sector-wide spillover and maintain that NYCB's problems seem to be mostly exclusive to the bank.
