Bloomberg
Former Trump administration officials Steven Mnuchin and Joseph Otting are part of an investment group that’s providing $1 billion of capital to rescue the beleaguered New York Community Bancorp, the company said Wednesday.
Otting, the former Comptroller of the Currency, will become the bank’s CEO, while Mnuchin, the former Treasury secretary, will join the bank’s board. 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 elevated as New York Community’s CEO last month, will stay with the company. His new title will be non-executive chairman, the same role he had before the bank’s turmoil started in January and he took a more hands-on role.
“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 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.”
Earlier Wednesday, trading in New York Community shares was halted after the Wall Street Journal reported that the company was weighing a capital raise. But trading resumed after the deal was announced. After falling by as much as 42% earlier in the day, shares were up more than 18% on Wednesday afternoon.
New York Community’s share price had been in free fall since late January, when the company slashed its dividend and reported some troubles in its real estate-heavy portfolio.
The company’s troubles later deepened, with the company ousting former CEO Thomas Cangemi and reporting
The 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 has long been dominated by rent-regulated New York City apartment buildings that have recently fallen into trouble.
Investors 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 joining.
The takeover of New York Community reunites Otting and Mnuchin, who previously profited from the failure of the former subprime lender IndyMac Bank. The collapse of that Pasadena, California-based bank was one of the costliest bank failures in U.S. history.
Mnuchin led an investor group that bought IndyMac in 2009 for $1.5 billion in an Federal Deposit Insurance Corp. auction.
Otting was named CEO of OneWest in 2010, when Mnuchin was the bank’s chairman. 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.
