Federal Reserve Chairman Jerome Powell and the former Treasury Secretary after the House Financial Services Committee’s hearing on “Oversight of the Treasury and Federal Reserve’s Epidemic Response” in the Rayburn House Office Building in Washington, DC, on December 2, 2020. Steven Mnuchin fist bumps.
Greg Nash | Reuters
More than $1 billion in capital injections New York Community Bank Wednesday’s announcement is the latest example of private equity investors turning to wounded Bank of America for help.
Led by $450 million A group of private investors is pouring new money into NYCB, according to former Treasury Secretary Steven Mnuchin’s Liberty Strategy Capital. The move eased concerns about the bank’s financial health, and the bank’s shares ended higher on Wednesday after falling sharply earlier in the day.
The cash infusion follows last year’s acquisition of PacWest by California Bank, which at its core $400 million From Warburg Pincus and Centerbridge Partners. The January merger of FirstSun Capital and HomeStreet has also been launched $175 million From Wellington Management.
Advisers and outside experts on recent deals say speed and caution are key in these deals. While selling shares to the public market could theoretically be a cheaper source of capital, it’s simply not something most banks are currently able to do.
“Public markets are too slow for this kind of financing,” he said. Steven Kelly Yale University Financial Stability Project. “They’re very useful if you’re doing an IPO and you’re not in a sensitive environment.”
Additionally, if a bank aggressively raises capital before completing a deal, its stock could face significant pressure and speculation about its balance sheet. That’s what happened to Silicon Valley Bank, which effectively sounded its death knell last year when it failed to raise capital.
Headlines about NYCB seeking funding sent its shares down 42% around noon on Wednesday before trading was halted. The stock soared following news of the successful capital raise.
“That was the unfortunate lesson for SVB,” said an adviser on the NYCB deal. “With a private deal, you can talk about it for a while and we’re almost at the end of the line before there’s any publicity.”
Mnuchin’s outreach
Amid headlines about threats to the New York City Chamber of Commerce, Mnuchin reached out directly to the New York City Chamber of Commerce for support, people familiar with the matter said. Mnuchin is more than just a former Treasury secretary. In 2009, he led a group purchase IndyMac Bank of California emerges from receivership. He eventually turned the bank around and sold it to CIT Group in 2015.
Now, assuming Mnuchin and his co-investors have seen and are satisfied with NYCB’s deposit levels and capital position, the bank has more time to fix its problems. Last week, NYCB revealed “significant flaws” in the way it reviews business loans and delayed the submission of a key annual report.
“It buys them a lot of time. It means the FDIC is not going to come and seize them on Friday,” Kelly said. “You have a billion dollars in capital and a huge endorsement from people who have read the books.”
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