On Wednesday, New York Community Bancorp (NYCB) drew significant attention when its shares fell sharply by 42%, then recovered after revealing plans for a $1 billion funding initiative.
The bank announced major changes in its leadership, including the addition of Steven Mnuchin, the former Treasury Secretary, to its board.
In an afternoon press release, NYCB announced it had reached an agreement with a group of investment firms, such as Liberty Strategic Capital (headed by Mnuchin), Hudson Bay Capital, and Reverence Capital Partners, to secure over $1 billion through a stock equity deal.
Under this deal, Mnuchin and Joseph Otting, the ex-comptroller of the currency, are set to join NYCB’s board, with Otting stepping in as the CEO.
The news led to a notable recovery in NYCB’s stock, though it faced significant fluctuations throughout the day.
Trading of the shares was temporarily suspended, with prices jumping nearly 30% at one point before losing some of those gains upon resumption.
By the end of the day, the stock managed to close with a more than 7% increase after facing multiple trading pauses.
NYCB Encounters Difficulties Following Acquisition of Crypto Bank
The efforts to raise capital and implement leadership changes are in response to a tough beginning of the year for NYCB.
In late January, the bank announced a notable increase in its reserves for potential loan losses, mainly due to its involvement with commercial real estate. This led Moody’s Investors Service to downgrade NYCB’s credit rating to below investment grade. Additionally, NYCB named Alessandro DiNello, former CEO of Flagstar Bank, as its executive chairman.
Last week, NYCB disclosed it had found significant flaws in its internal controls over loan reviews and declared DiNello’s short stint as CEO before he moved to a non-executive chairman role, as per the Wednesday press release.
These recent events at NYCB remind many of the issues that regional banks like Silicon Valley Bank, Signature Bank, and First Republic faced, which resulted in their failures in spring 2023. Notably, Signature Bank, a key banking partner for crypto businesses, was closed down on March 12, 2023, following massive withdrawals by depositors in the aftermath of Silicon Valley Bank’s collapse.
NYCB, located in suburban New York, took over a substantial portion of Signature Bank’s assets during this period, including deposits and loans, with the total nearing $13 billion.
US Banks Encounter Challenges Due to Engagement with Cryptocurrencies
Last year, the Heartland Tri-State Bank in Elkhart, Kansas, was compelled to close its doors following a cryptocurrency scam that led to significant financial losses by its CEO, Shan Hanes.
The state’s banking authority, the Kansas Office of the State Bank Commissioner, initiated an inquiry into the bank’s operations and declared it insolvent on July 28.
Subsequently, the Federal Deposit Insurance Corp. (FDIC) stepped in as the receiver of the bank, estimating a $54 million hit to its insurance fund meant to safeguard depositors.
This incident marked Heartland as one of the four significant US banking institutions to fail last year, a list that includes Silvergate Bank, Signature Bank, Silicon Valley Bank, and First Republic Bank. Notably, the failures of Silvergate and Signature were also partially linked to the turbulent crypto market conditions in 2022.