New York Community Bancorp (NYCB) To Avert Crisis With $1B Deal
Highlights
- The bank run on NYCB might be wearing off as the company unveiled a $1 billion deal to bolster its capital base
- The company's shares jumped over 28% following the news
- NYCB might be another case of averted banking crisis
In a bid to salvage its distressed situation, New York Community Bank (NYCB) has agreed to a $1 billion deal with a couple of investors.
The New York Community Bank Crisis
The last few weeks came with a lot of pressure for New York Community Bank as its shares is known to historically fall significantly by 38%. At the time, NYCB CEO Thomas Cangemi claimed the bank was adjusting to the demands of being a large bank after it acquired assets and liabilities from the crypto-friendly financial institution, Signature Bank. However, the situation did not get better with time.
New York Community Bank was pushed to the brink of bankruptcy with its credit rating down to red levels. Moody’s described the situation as the bank facing “multifaceted” financial risks and governance challenges. Following the call, there was a further plunge in the price of NYCB shares by 22%.
Cumulatively, the entire plunge in shares brought the stock down to around $2 per share, an unfortunate figure for a company whose shares topped $10 per share in January. All of these setbacks including a lawsuit from shareholders, almost put the financial institution in an irredeemable position.
NYCB Is Undergoing Crucial Restructuring
It appears that tables are about to turn after the announcement of a $1 billion deal on Wednesday. NYCB secured the fund from top investors including the United States Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital, Hudson Bay Capital, Reverence Capital Partners, Citadel Global Equities, and other institutional investors. According to NYCB, some members of its management also took part in the investment.
Precisely, Liberty Strategic would infuse $450 million, Hudson Bay $250 million and Reverence Capital would inject $200 million.
As part of the terms of the agreement, Mnuchin will sit on NYCB’s board of directors. Similarly, Joseph Otting, former Comptroller of the Currency will also join the four-man board of directors in addition to replacing Alessandro DiNello as the CEO. DiNello becomes the non-executive chair of the bank.
NYCB’s shares response to the announcement was an immediate jump although trading was quite volatile. It gained as much as 30% before trading was halted and when it resumed, the shares gave up some of those gains. So far, there has been some recovery as the stock is now at $3.46 per share. The injection of the $1 billion is likely to make a positive impact in NYCB and avert another major banking crisis.
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