Federal Reserve Board Director Jerome Powell after a House Financial Services Committee hearing on “Oversight of the Treasury and Federal Reserve’s Pandemic Response” at the Rayburn House Office Building on December 2, 2020, in Washington, DC. The chairman of the conference fist bumps former Treasury Secretary Steven Mnuchin. .
Greg NashReuter
With an injection of more than $1 billion, new york community bank Wednesday’s announcement is the latest example of private equity players taking on hurting American financiers.
A group of private investors is pouring new money into NYCB, led by $450 million from former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital. The move eased concerns about the bank’s finances, as the company’s shares closed higher on Wednesday after plunging earlier in the day.
The cash infusion follows Bank of California’s acquisition of PacWest last year, which was funded with $400 million from Warburg Pincus and Centerbridge Partners. The January merger of First Sun Capital and HomeStreet also brought in $175 million from Wellington Management.
Advisers and outside experts on some of the recent transactions say speed and prudence are the keys to such transactions. Selling shares to the public market could theoretically be a cheaper source of funding, but it is not currently available to most banks.
“Public markets move too slowly for this type of financing,” said Stephen Kelly of the Yale Financial Stability Program. “It’s great if you’re doing an IPO and you’re not in a sensitive environment.”
Additionally, if a bank is known to be actively raising capital before completing a deal, the stock could face intense pressure and speculation about its balance sheet. That happened to Silicon Valley Bank as well. Last year’s failure to raise funds effectively spelled doom.
Around midday on Wednesday, headlines broke that NYCB was seeking capital, and the company’s shares fell 42% before trading was halted. After that, the stock price skyrocketed on the news that the company had successfully raised funds.
“This is an unfortunate lesson from SVB,” said an advisor on the NYCB deal. “With the private deal, we were able to talk for a while and almost got to the finish line before it got publicized.”
President Mnuchin’s efforts
Mnuchin reached out directly to New York’s central bank to offer assistance amid highly publicized pressures on the bank, according to a person familiar with the matter. Mr. Mnuchin is more than just a former Treasury secretary. In 2009, he led a group that bought California bank IndyMac from receivership. He eventually turned the bank around and sold it to CIT Group in 2015.
Now, assuming Secretary Mnuchin and his co-investors understand and are happy with NYCB’s deposit levels and capital position, the bank has much more time to resolve its issues. NYCB last week disclosed “significant weaknesses” in the way it reviews commercial loans, delaying the filing of a key annual report.
“This buys them a ton of time, which means the FDIC isn’t coming to seize them on Friday,” Kelly said. “You have $1 billion in capital and huge support from people who have seen the book.”
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