Troubled regional NYCB receives a lifeline, will it be enough?
New York Community Bancorp, Inc. (NYCB), has had a wild ride today. The bank"s stock slipped to $1.70 as rumors of liquidity concerns led to selling pressure. The stock was halted for news at Noon, leaving investors to wonder what might come next.
The struggling regional bank, received a lifeline following a recent strategic investment of over $1 billion led by Liberty Strategic Capital, Hudson Bay Capital, Reverence Capital Partners, Citadel Securities, and certain members of the company's management. This strategic investment comes at a critical time for NYCB as it aims to navigate through a challenging period marked by credit losses and concerns over its commercial real estate portfolio. This investment represents an endorsement of the bank's operations by some deep pockets.
In addition to the investment, the company has added four new directors to its Board, including Steven Mnuchin, the former Secretary of the Treasury, Joseph Otting, former Comptroller of the Currency, Allen Puwalski from Hudson Bay, and Milton Berlinski, Managing Partner of Reverence Capital.
Joseph Otting has been named as the new CEO, while Alessandro DiNello has been appointed as Non-Executive Chairman.
The new leadership team, supported by the reconstituted Board, will continue to take the necessary actions to achieve these goals.
In connection with the equity capital raise transaction, NYCB will sell and issue shares of common stock and a series of convertible preferred stock with a conversion price of $2.00 to the investors for an aggregate investment amount of $1.05 billion.
The investors will also receive 60% warrant coverage to purchase non-voting, common-equivalent stock with an exercise price of $2.50 per share, a 25% premium to the price paid on common stock.
Holders of the preferred stock will not have voting rights and will be entitled to quarterly non-cumulative cash dividends, as and if declared by the Board. Each share of preferred stock is convertible into common stock on a 1 preferred share – 1,000 common shares basis.
The transaction is expected to close on or around March 11, 2024, subject to the satisfaction of certain closing conditions and the receipt of any regulatory approvals required for the new roles of Mr. Otting and Mr. DiNello.
NYCB has faced significant challenges in recent times, including a downgrade to junk status by Moody's and investor concerns over the bank's commercial real estate portfolio. The company reported a surprise loss for the fourth quarter, including significant credit losses linked to real estate.
In response, NYCB has announced a cut to its dividend and taken steps to bolster its capital and liquidity ratios to meet regulatory requirements. Despite these difficulties, NYCB has expressed confidence in its liquidity position, stating it has adequate funds to cover deposits and intends to expedite the selling of assets or refinancing its balance sheet to meet market demands.
The bank has also emphasized that the majority of its deposits are insured and that it has significant liquidity exceeding uninsured deposits.
Shares of NYCB rocketed higher on the news. Shorts certainly covered positions as the backing of major players such as Mnuchin were enough to stabilize worries about the bank"s solvency. The investment represents some onerous terms and includes warrants that will be dilutive to the stock for years to come. This would keep us on the sidelines until we see stability.
Investors could turn their attention to two bank regional ETFs, the KRE and the DPST for opportunities as this announcement should help stabilize contagion and counterparty risks.
In conclusion, the recent strategic investment in New York Community Bancorp (NYCB) is a strong endorsement of the bank's turnaround and positions it for future growth. With a strong balance sheet, a diversified and retail-focused deposit base, and a reconstituted Board and management team, NYCB is well-equipped to improve earnings, profitability, and drive enhanced value for shareholders. As the bank continues to take the necessary actions to achieve these goals, it remains poised to become a well-capitalized $100+ billion national bank with a diversified, de-risked business model.