New York Community Bancorp on Wednesday announced it received a more-than $1 billion equity investment and a slate of new board members amid concerns over real estate loan losses and weakness in internal controls.
NYCB stock rocketed on the update before trading was paused. Shares dove more than 40% prior to the announcement on Wall Street Journal reports that the bank was seeking a cash infusion to remedy its financial troubles.
NYCB Lands $1 Billion Cash Investment
New York Community Bancorp jumped onto investors' radar on Jan. 31 when it reported a surprise loss and announced a 70% dividend cut. The bank said it was preparing to meet higher capital standards following its December 2022 acquisition of Flagstar Bank and purchase of Signature Bank's assets and liabilities from the FDIC in March 2023.
The acquisitions put them over the $100 billion threshold and into the Category IV large bank class, which brings a higher degree of regulatory scrutiny.
In putting together its $1 billion cash influx, NYCB said Wednesday it expects Liberty Strategic Capital to invest $450 million, Hudson Bay Capital to contribute $200 million and Reverence Capital Partners to provide $200 million as part of the transaction. It listed Citadel Global Equities as another institutional investor.
To facilitate the transaction, NYCB said it would sell and issue shares of common and preferred stock for an aggregate investment amount of $1.05 billion. The bank expects the transaction to close March 11, subject to closing conditions and regulatory approvals.
The WSJ earlier Wednesday reported the regional bank had tasked bankers with gauging investor interest in buying company stock.
New Management
New York Community Bank added four new directors to its board in connection to the financing arrangement, including former Treasury Secretary Steven Mnuchin. Hudson Bay's Allen Puwalski and Milton Berlinski, managing partner of Reverence Capital, were also named as new directors.
Former Comptroller of the Currency Joseph Otton also joined the board and assumed the role of CEO. Alessandro DiNello exited the executive chairman, president and CEO positions, shifting to nonexecutive chairman.
"In evaluating this investment, we were mindful of the bank's credit risk profile," Mnuchin said in the release. "With the over $1 billion of capital invested in the bank, we believe we now have sufficient capital should reserves need to be increased in the future."
NYCB Troubles
In early February, following the dividend and earnings shake-up, New York Community Bancorp appointed DiNello as its new chairman. It also announced deposits were stable in a liquidity update. At the same time, the bank received downgrades from Moody's Investor Service and Fitch Ratings.
In addition, the bank reported a $552 million loan-loss provision during the quarter. That was up from $62 million in provisions for loan losses the prior quarter. The bank cited office-sector weakness and risks related to its multifamily portfolio. NYCB's multifamily issues are at least partly related to rent-stabilized properties.
Then, on Feb. 29, NYCB reported a review in which "management identified material weakness in the company's internal controls," related to internal loan reviews. The review noted "ineffective oversight, risk assessment and monitoring activities."
The bank delayed publishing its annual report due to ineffective internal controls, according to an SEC filing. New York Community Bank said it does not expect the updated results to differ materially from those previously reported. It intends to release a remediation plan with the new 10-K filing.
What's Next?
"New York Community's asset quality has deteriorated considerably," said Brian Mulberry, client portfolio manager at Zacks Investment Management. He noted the bank's nonperforming assets and provision for credit losses had trended higher throughout the first nine months of fiscal 2023. He added its asset quality is likely to decline in the upcoming quarters due to uncertain macroeconomic conditions.
"The immediate infusion of over $1 billion should go a long way to addressing the liquidity issues NYCB was experiencing, but it does not remove all worry about other issues on the balance sheet," Mulberry said.
"That said, Steven Mnuchin is experienced and influential and if he is now installed on the board, it would seem that he and the other backers are confident they can right the ship. This is certainly a positive development for NYCB in both the ultra near-term as well as addressing the longer-term structural problems of the bank."
NYCB Stock
NYCB stock swung wildly Wednesday as news rolled in and was subject to multiple trading pauses. Shares wavered between a 4% gain and slight loss after the equity transaction announcement. NYCB stock tumbled 42% early Wednesday on the WSJ report before trading halted.
Shares are at their lowest level since November 1996 as NYCB dove nearly 82% so far this year, MarketSurge data shows.
The SPDR S&P Regional Banking ETFKRE ticked higher Wednesday after sliding 1.4% prior to the NYCB announcement.
Rallying Bank Stocks
Still, other bank and financial stocks are holding up well.
BlackRock on Monday broke out above an 819 buy point for a nine-week flat base. It finished Wednesday up 2% for the week. Fifth Third Bancorp trades near a 35.73 buy point, up 4.9% for the week. BlackRock and Fifth Third were the IBD Stock Of The Day subjects on Monday and Tuesday, respectively. Fifth Third is also an IBD Leaderboard stock.
JPMorgan Chase continues to push to all-time highs following its mid-December breakout. JPM stock has jumped more than 11% in 2024. Wells Fargo is up 16% this year after its late-January breakout, pushing back toward its record levels from February 2022.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
