Federal Reserve Chairman Jerome Powell punches former Treasury Secretary Steven Mnuchin after a House Financial Services Committee hearing on “Oversight of the Treasury and Reserve Department's Pandemic Response Federal” in the Rayburn House Office Building in Washington, DC, on December 2, 2020.
Greg Nash | Reuters
The injection of more than a billion dollars that New York Community Bank The move announced Wednesday is the latest example of private equity players reaching out to the needs of a wounded U.S. lender.
Led by $450 million from former Treasury Secretary Steven Mnuchin's Liberty Strategic Capital, a group of private investors are pouring new funds into NYCB. The move eased concerns about the bank's finances, as its shares closed higher on Wednesday after a sharp drop earlier in the day.
That cash infusion follows Banc of California's acquisition of PacWest last year, which was backed by $400 million from Warburg Pincus and Centerbridge Partners. A January merger between FirstSun Capital and HomeStreet also netted $175 million from Wellington Management.
Speed and discretion are key to these deals, according to advisers on several recent transactions and outside experts. While selling shares in the public markets could, in theory, be a cheaper source of capital, it is simply not available to most banks right now.
“Public markets are too slow for this type of capital increase,” said Steven Kelly of the Yale Financial Stability Program. “They're 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 the deal can close, its stock could face intense pressure and speculation on its balance sheet. That happened to Silicon Valley Bank, whose failure to raise funds last year was effectively its death knell.
On Wednesday, headlines around noon that NYCB was seeking capital sent its shares tumbling 42% before trading was halted. The shares later rose on news that they had successfully raised financing.
“This is the unfortunate lesson of the SVB,” one advisor said of the NYCB transaction. “With private agreements you can talk for a while and we almost reached the goal before there was publicity.”
Mnuchin's reach
Mnuchin reached out directly to NYCB to offer support amid headlines about the pressure he was under, according to a person with knowledge of the matter. Mnuchin is not just a former Treasury secretary. In 2009, he led a group that bought bankrupt California bank IndyMac. He eventually turned the bank around and sold it to CIT Group in 2015.
Now, assuming Mnuchin and his co-investors have seen NYCB's deposit levels and capital situation (and are comfortable with them), the bank has much more time to resolve its problems. Last week, NYCB revealed “material weaknesses” in the way it reviewed its commercial loans and delayed filing a key annual report.
“This buys them plenty of time. It means the FDIC won't come and seize them on Friday,” Kelly said. “You have a billion dollars in capital and enormous backing from someone who has seen the books.”
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