Federal Reserve Chairman Jerome Powell punches former Treasury Secretary Steven Mnuchin after a House Financial Services Committee hearing on “Oversight of the Treasury and Federal Reserve’s pandemic response” in Rayburn House Office Building in Washington, DC, on December 2, 2020.
Greg Nash | Reuters
The amount is worth more than 1 billion USD New York Community Bank announced Wednesday is the latest example of private equity players needing a hurting U.S. lender.
Due 450 million USD from former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital, a group of private investors is pouring new capital into NYCB. This move allays concerns on the bank’s financial situation, as its shares closed up on Wednesday after falling sharply earlier in the day.
The cash injection follows Banc of California’s acquisition last year of PacWest, which is managed by 400 million USD from Warburg Pincus and Centerbridge Partners. The January merger between FirstSun Capital and HomeStreet was also explored 175 million USD from Wellington Management.
Speed and discretion were key to these transactions, according to advisers to several recent transactions and outside experts. While selling shares to the public market could theoretically be a cheaper source of capital, this method is not currently available to most banks.
“The public market is too slow for this type of capital mobilization,” he said. Steven Kelly of the Yale Program on Financial Stability. “It’s great if you’re doing an IPO and you’re not in a sensitive environment.”
Furthermore, if a bank is known to be actively raising capital before a deal can be completed, its stock may face intense pressure and speculation about its balance sheet. maths. That happened with Silicon Valley Bank, which has failed to raise Last year’s funding was effectively its death knell.
On Wednesday, news broke around noon that NYCB had looking for capital sent its shares down 42% before trading was halted. Shares skyrocketed afterward thanks to news of successful capital mobilization.
“This is an unfortunate lesson from SVB,” said a NYCB transaction consultant. “With private deals, you can talk for a while and we’re almost at the finish line before there’s any publicity.”
Mnuchin’s outreach
According to a person with knowledge of the matter, Mnuchin contacted NYCB directly to offer support amid widespread news about the difficult situation the city is facing. Mnuchin is not just a former Treasury Secretary. In 2009, he led a group buy California Bank IndyMac is out of receivership. He eventually turned the bank around and sold it to CIT Group in 2015.
Now, assuming that Mnuchin and his co-investors have seen NYCB’s deposit levels and capital situation – and are comfortable with them – the bank has more time to address the issues mine. Last week, NYCB revealed “material weakness” in the way it reviews commercial loans and delays the filing of important annual reports.
“This takes them a lot of time,” Kelly said. That means the FDIC won’t be coming to arrest them on Friday.” “You have billions of dollars in capital and a huge endorsement from someone who has seen the books.”
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