New York Community Bank gets $1 billion ‘lifeline’ from former Treasury Secretary Steven Mnuchin’s company

The majority of the investment, $450 million, is coming from former Treasury Secretary Steven Mnuchin’s firm, Liberty Strategic Capital. The remaining sum will come from Hudson Bay Capital, Reverence Capital Partners, Citadel Securities and “other institutional investors and certain members of the Company’s management,” according to an announcement NYCB made Wednesday afternoon.

The bank’s stock plunged more than 40% earlier on Wednesday after The Wall Street Journal reported that the bank was seeking a major cash infusion.

The money “provides a lifeline,” David Chiaverini, managing director of equity research at Wedbush Securities, told CNN.

Around 12:30 pm ET the stock was halted from trading pending the announcement. When the stock began trading again around 2:40 pm ET it jumped by 31% but started to slip again. Around 3 pm ET shares were around breakeven.

In addition to the investment, NYCB announced Joseph Otting, a former comptroller of the currency, will replace Alessandro DiNello as CEO. DiNello, who was named CEO less than a week ago, will now become non-executive chairman.

Four new board seats will be filled by Mnuchin, Otting, Allen Puwalski from Hudson Bay and Milton Berlinski from Reverence.

The new investment should help ensure NYCB has enough of a capital buffer if it is required to set aside more money in reserves, Mnuchin said in a statement on Wednesday.

What remains to be seen is if clients are keeping their money in the bank given recent developments. In an update last month, the bank said that deposits were stable and had even increased slightly in the last quarter of 2023. That update came after NYCB reported a surprise loss last quarter in part because of soured commercial real estate loans.

Then last week, the bank said in a filing it had identified “material weakness” in the company’s controls. The issues caused a $2.4 billion loss to shareholders last quarter, NYCB said.

It delayed the release of its required annual financial disclosure to focus on addressing the issues it identified. The bank said it now expects to file its annual report by March 15. Unless the company provides an additional update that report will be the latest source of information on whether depositors are withdrawing their funds. The delay draws eerie parallels to First Republic Bank, which postponed reporting its quarterly earnings shortly before it failed last year.

First Republic Bank similarly needed an emergency cash infusions not long before it collapsed.

NYCB didn’t immediately respond to CNN’s request for a comment, and the US Treasury Department declined to comment.

At less than $2 a share, the stock is nearing an all-time low. It’s down more 80% year to date.

“You should feel better about the company surviving,” after the infusion KBW managing director Christopher McGratty told CNN.

This is a developing story and will be updated.

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