Former Treasury Secretary Steve Mnuchin and an investor group recently completed a $1 billion deal to inject new capital into troubled lender New York Community Bancorp (NYCB), just days before the one-year anniversary of the government seizure of Silicon Valley Bank (SVB).
Mnuchin had extensive conversations with regulators at the Federal Reserve and the Office of the Comptroller of the Currency, who supported the injection of capital into NYCB. Regulators learned from the SVB seizure that it is crucial to address problems at individual banks before they escalate and potentially cause panic in the financial markets.
A private solution for a troubled lender is often preferred over a public bailout, as it is generally cheaper for the wider banking system. Banks have already paid billions in the fourth quarter to cover losses from the failures of SVB and New York lender Signature Bank, with more losses expected.
In 2024, the focus is on commercial real estate, with banks being closely monitored to ensure they have enough liquidity and capital to absorb potential losses. FDIC Chair Martin Gruenberg has identified commercial real estate as a downside risk for the industry and a top priority for regulatory efforts.
Following NYCB’s tighter requirements, the decision was made to slash its dividend and increase reserves for future loan losses, leading to a stock slide until Mnuchin’s intervention. The lender’s new CEO, former Comptroller of the Currency Joseph Otting, aims to diversify the loan book with one-third allocated to consumers, companies, and real estate.
Upon the announcement of the $1 billion infusion, NYCB’s stock rose by 6%, but experienced a 7% drop on Friday, closing at $3.42 a share. Mnuchin and the other investors agreed to pay $2 a share for their investment in NYCB.
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