Federal Reserve Chairman Jerome Powell fist-bumped former Treasury Secretary Steven Mnuchin following a House Financial Services Committee hearing on “Overseeing the Treasury and Federal Reserve’s Pandemic Response” at the Rayburn House office building in Washington, D.C. 2 December 2020. .
Greg Nash | Reuters
An infusion of more than $1 billion that New York Community Bank announced Wednesday is the latest example of private equity players turning to the wounded U.S. lender.
Under the direction of $450 million A group of private investors from former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital is pouring new money into NYCB. The move calmed concerns about the bank’s financial health as its shares closed higher on Wednesday after falling sharply earlier in the day.
This cash infusion follows last year’s acquisition of PacWest by Bank of California, which was secured $400 million from Warburg Pincus and Centerbridge Partners. The January merger of FirstSun Capital and HomeStreet also became effective. $175 million from Wellington Management.
Speed and confidentiality are key to these deals, according to advisers to several recent deals and outside experts. While selling shares on the public markets could theoretically be a cheaper source of capital, it is simply not available to most banks right now.
“Public markets are too slow for this kind of capital raising,” he said. Stephen Kelly Yale Financial Stability Program. “They’re good if you’re doing an IPO and you’re not in a sensitive environment.”
Moreover, if a bank is known to be actively raising capital before it can close a deal, its stock could face intense pressure and speculation about its balance sheet. That’s what happened to the Silicon Valley bank, whose failure to raise funding last year effectively spelled its death knell.
Around noon on Wednesday, headlines that NYCB was seeking capital sent its shares plummeting 42% before trading was halted. After that, shares rose on news of successful funding.
“This is a failed lesson for SVB,” said NYCB’s deal adviser. “In terms of private deals, you can talk for a while, and we almost got to the finish line before there was any publicity.”
Mnuchin’s activities
Mnuchin reached out directly to NYCB to offer support amid headlines about the pressure it is under, according to a person familiar with the matter. Mnuchin is not just a former Treasury secretary. In 2009, he led a group that bought California bank IndyMac has emerged from receivership. He eventually turned the bank around and sold it to CIT Group in 2015.
Now, assuming that Mnuchin and his co-investors have reviewed—and are happy with—NYCB’s deposit levels and capital situation, the bank has much more time to resolve its problems. Last week, NYCB disclosed “material deficiencies” in its commercial loan review practices and delayed the filing of a key annual report.
“It gives them a lot of time. That means the FDIC won’t be coming to seize them on Friday,” Kelly said. “You have a billion-dollar capital and enormous support from someone who has seen the books.”
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