Federal Reserve Chair Jerome Powell fist-bumps former Treasury Secretary Steven Mnuchin after a House Financial Services Committee hearing on “Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response” within the Rayburn House Office Constructing in Washington, D.C., on Dec. 2, 2020.
Greg Nash | Reuters
The $1 billion-plus injection that Recent York Community Bank announced Wednesday is the newest example of personal equity players coming to the necessity of a wounded American lender.
Led by $450 million from ex-Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital, a gaggle of personal investors are plowing fresh funds into NYCB. The move soothed concerns concerning the bank’s funds, as its shares closed higher on Wednesday after a steep decline earlier within the day.
That money infusion follows last yr’s acquisition of PacWest by Banc of California, which was anchored by $400 million from Warburg Pincus and Centerbridge Partners. A January merger between FirstSun Capital and HomeStreet also tapped $175 million from Wellington Management.
Speed and discretion are key to those deals, in line with advisors to several recent transactions and external experts. While selling stock into public markets could theoretically be a less expensive source of capital, it’s simply not available to most banks right away.
“Public markets are too slow for this type of capital raise,” said Steven Kelly of the Yale Program on Financial Stability. “They’re great when you are doing an IPO and you are not in a sensitive environment.”
Moreover, if a bank is thought to be actively raising capital before having the ability to close the deal, its stock could face intense pressure and speculation about its balance sheet. That happened to Silicon Valley Bank, whose failure to boost funding last yr was effectively its death knell.
On Wednesday, headlines around noon that NYCB was searching for capital sent its shares down 42% before trading was halted. The stock surged afterward on the news that it had successfully raised funding.
“That is the unlucky lesson from SVB,” said an advisor on the NYCB transaction. “With private deals, you possibly can talk for some time, and we almost got to the finish line before there was any publicity.”
Mnuchin’s outreach
Mnuchin reached out to NYCB directly to supply support amid headlines concerning the duress it was under, in line with an individual with knowledge of the matter. Mnuchin is not just a former Treasury secretary. In 2009, he led a gaggle that bought California bank IndyMac out of receivership. He ultimately turned the bank around and sold it to CIT Group in 2015.
Now, with the belief that Mnuchin and his co-investors have seen NYCB’s deposit levels and capital situation — and are comfortable with them — the bank has rather more time to resolve its issues. Last week, NYCB disclosed “material weaknesses” in the way in which it reviewed its business loans and delayed the filing of a key annual report.
“This buys them a ton of time. It means the FDIC is not coming to seize them on Friday,” Kelly said. “You may have a billion dollars in capital and an enormous endorsement from someone who has seen the books.”
Don’t miss these stories from CNBC PRO:
