Roughly one yr ago, regional banks were the large story on the markets, as high rates of interest and a run on deposits set off a series of events that led to a few major banks going under and plenty of others taking major hits.
One in all the tangential players in last yr’s banking meltdown, Latest York Community Bancorp (NYSE:NYCB), is the main focus of the drama this yr. On Thursday, the embattled bank, which had plummeted into penny stock territory, shared some excellent news: a $1 billion investment from a gaggle led by former Treasury Secretary Steve Mnuchin.
The bank’s stock price greater than doubled from about $1.75 per share on Wednesday afternoon to around $3.73 per share as of Thursday afternoon. Let’s take a take a look at the most recent twist in a crazy month for this bank.
Too big, too fast
Latest York Community Bancorp was actually a beneficiary of last yr’s banking crisis because it acquired $38 billion in assets from the failed Signature Bank via the Federal Deposit Insurance Corp., which had taken over the bank. Through its subsidiary Flagstar Bank, Latest York Community Bank brought in about $13 billion in loans and $34 billion in deposits from the previous Signature Bank.
The bank’s stock price doubled to almost $14 per share in the next months, making it considered one of the few bank stocks that outperformed the markets last yr.
Nonetheless, with the Signature assets got here problems that began to return to light earlier this yr. Latest York Community Bank’s fourth-quarter earnings showed a $260 million net loss, versus a $199 million net profit the previous quarter. As well as, the bank slashed its dividend to five cents a share from 17 cents. That led to a serious selloff that saw the stock price drop from over $10 per share to below $5 per share in early February.
That led to some customers pulling their deposits, in response to CNN. Between Feb. 5 and March 5, the firm saw its deposit base decrease by $6 billion to $77 billion, the news outlet added.
As then-CEO Thomas Cangemi explained, just five weeks ago, Latest York Community Bank grew too big too fast. Not only had it acquired the assets of Signature Bank last yr; it also bought Flagstar Bank in December 2022.
Those two acquisitions put NYCB over $100 billion in total assets. Because of this, Latest York Community Bank shifted into large-bank territory, subjecting it to enhanced prudential standards, including risk-based and leverage capital requirements, liquidity standards, risk management requirements, and stress testing.
“While we began preparing to be a $100 billion bank almost immediately after closing the Flagstar acquisition, we crossed this essential threshold ahead of anticipated consequently of the Signature transaction,” Cangemi said within the Q4 earnings report. “Alongside the combination of our three banks and in anticipation of our initial capital plan submission in April of this yr, we now have pivoted quickly and accelerated some obligatory enhancements that include being a $100 billion-plus Category IV bank.”
From bad to worse
Things got worse from there because the firm amended its earnings in an 8-K SEC filing on Feb. 29. The filing showed an actual $2.7 billion net loss in Q4 on account of a previously undisclosed $2.4 billion goodwill impairment, which stemmed from a pre-2007 transaction that became fully impaired at the tip of 2023.
In that very same filing, Latest York Community Bank acknowledged some troubling developments regarding its internal controls. The filing said “management identified material weaknesses in the corporate’s internal controls related to internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities.” It added that its “disclosure controls and procedures and internal control over financial reporting weren’t effective as of December 31, 2023.”
That very same day, the corporate issued a press release stating that Cangemi had resigned as president and CEO after 27 years, and executive chairman of the board Alessandro DiNello was appointed to switch him. DiNello had been the CEO of Flagstar Bank and has served on the NYCB board since Flagstar was acquired in late 2022.
Nonetheless, not everyone was thrilled along with his appointment as CEO, as my colleague David Moadel wrote earlier this week. Board member Hanif Dahya wrote a letter saying he didn’t support the appointment of DiNello. Subsequently, Dahya stepped down from his post as a director. A number of days later, there was one other change at the highest.
Mnuchin to the rescue?
This long, strange trip took one other activate Thursday when Latest York Community Bank announced that it had hired a recent CEO to switch DiNello: Thomas Otting. After his short management tenure, DiNello was moved back to the board. Otting served as U.S. comptroller of the currency in the course of the Trump Administration.
One other Trump official, former U.S. Treasury Secretary Steve Mnuchin, can also be playing a giant role in attempting to fix NYCB. Mnuchin, founding father of Liberty Strategic Capital, is considered one of three major private-equity firms which might be investing about $1 billion in Latest York Community Bancorp to supply it with the capital it needs to fulfill regulatory requirements. Mnuchin’s Liberty Strategic Capital is investing $450 million, while Hudson Bay Capital Management will invest $250 million, and Reverence Capital Partners will invest $200 million. The remainder is coming from other institutional investors.
“With the over $1 billion of capital invested within the bank, we imagine we now have sufficient capital should reserves have to be increased in the longer term to be consistent with or above the coverage ratio of NYCB’s large bank peers,” Mnuchin said. “We decided to make this investment because we imagine Sandro, alongside recent management, has taken the suitable actions to stabilize the corporate and to position NYCB to change into a best-in-class $100+ billion national bank with a diversified and de-risked business model that supports long run profitability.”
Mnuchin, together with Otting, Milton Berlinski from Reverence Capital, and Allen Puwalski, were also appointed to the board.
There’s loads to unpack here, however the investment definitely threw the floundering bank a lifeline, no less than in the meanwhile. There are still a whole lot of problems to work through, plans to execute on, and massive inquiries to answer. It might be not a stock to think about straight away given the uncertainty, despite its dirt-cheap valuation.