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NEW YORK (AP) — Embattled New York Community Bancorp said Wednesday it will be offered a lifeline of more than $1 billion from a group of investors after its stock price fell more than 80% this year.
The bank’s stock price has been volatile, hit by a downturn in commercial real estate and growing pains that triggered its recent acquisition of another struggling bank. New York Community Bancorp lost nearly half its market value Wednesday on rumors it was seeking cash, then soared to its highest in nearly a year on news of a capital injection, but quickly parlayed those gains. I let it all go.
The agreement will add four new directors to NYCB’s board, including Steven Mnuchin, a former Treasury secretary under President Donald Trump. Former Comptroller of the Currency Joseph Otting will become the bank’s CEO.
Under the deal, which the bank said still required “final documentation completion” and regulatory approvals, the bank would receive $450 million from Mr. Mnuchin’s Liberty Strategic Capital and $450 million from Hudson Bay. The company will receive an investment of $250 million from Capital and $200 million from Reverence Capital. The bank is backed by more than $1 billion in cash from other institutional investors and some bank executives.
Investors will receive company stock valued at $2 per share, as well as convertible preferred stock that can pay dividends every three months.
The stock had fallen 42% to $1.86 early Wednesday, but trading was halted in the afternoon pending reports. The Wall Street Journal reported on the same day that the financial institution is considering raising cash through a stock sale to boost confidence in the company.
After news of the $1 billion investment, NYCB stock quickly erased its losses and rose 18% on what would have been its best day since March 20. However, the stock price gave up on rising and has since fluctuated between losses and gains. With less than an hour left until the final bell, the stock rose 4.3%.
Stock prices of other regional banks, which are experiencing the same concerns that plagued NYCB, have also fluctuated wildly. The local bank stock index turned down slightly from a 3.1% drop before the announcement, and fell 0.1% again.
NYCB was a relatively unknown bank until last year when it acquired Signature Bank’s assets for $2.7 billion in a March 19 auction. Signature was one of the banks that failed in the industry’s mini-crisis last year, and the bank run also accelerated the failure of the Silicon Valley bank.
NYCB’s sudden increase in size meant it had to face increased regulatory scrutiny. That’s part of the challenge for the bank, which is trying to reassure depositors and investors that it can handle the Signature Bank acquisition while also dealing with a struggling real estate portfolio.
Last week, NYCB announced that it had discovered significant weaknesses in its internal loan review methods due to ineffective oversight, risk assessment, and monitoring activities. As a result, the company delayed filing its annual report and reported an even bigger loss in its most recent quarter. The long-serving chief executive officer (CEO) was also replaced.
Pressure on the bank increased after credit agencies downgraded NYCB’s ratings.
Industry analysts still say NYCB’s problems appear to be specific to the bank and downplay the risk of contagion to the banking sector.
“It’s very interesting that they ended up consolidating some bank acquisitions that didn’t seem to work out,” said Chris Caulfield, a banking industry consultant and West Monroe analyst specializing in mid-sized banks. ” he said.
But the downturn in commercial real estate has become a pressing challenge for banks of all types, as changes in the way people work post-pandemic have led to more vacancies in many office buildings.
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AP Business Writer Ken Sweet contributed.
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