The bank in crisis raises 1 billion from a consortium of investors led by former US Treasury Secretary Steve Mnuchin. A new CEO appointed
2′ reading
A new regional American bank is on the verge of collapse. New York Community Bancorp, reeling from spiraling real estate liabilities, is seeking capital injections to strengthen its financial position and orchestrate a last-minute bailout.
The losses, together with doubts about the soundness of management and internal controls, have crushed the stock, which in a few hours is dropped by 40% accelerating declines that began in January and which to date have caused more than 70% of its value to evaporate on Wall Street. The shares slipped below two dollars and were then suspended from trading.
In the evening the news arrived that the bank had raised over 1 billion from a consortium of investors led by former US Treasury Secretary Steve Mnuchin and the appointment of Joseph Otting, former Comproller of the Currency, as the bank’s new CEO.
The risks for local banks
The saga, more generally, has brought to the fore the risks for the network of local and regional banks in the United States, after the collapse last year of three influential groups including Silicon Valley Bank had threatened even wider contagions in the credit system leading to interventions by federal authorities and large institutions. In the last few hours, the nervousness among investors has punished other regional brands, from Valley National Bancorp to Citizens Financials on Wall Street, together with the sector index Kbw Regional Banking Index.
The New York Community Bancorp case
Pressure on the institution has multiplied since it revealed quarterly losses linked to its commercial property portfolio at the beginning of the year, a liability that swelled to 2.7 billion with 2.4 billion in writedowns. It also announced dividend cuts of 70% to conserve resources and meet capital requirements.
The bank is particularly exposed, for about half of its loans, to the rent-regulated category of buildings in New York City, a segment that has suffered under rising interest rates and new rules to limit price increases to the detriment of consumers. In total its loan portfolio at the end of December was 84.6 billion, with over 8% estimated to be at highest risk of default.
The negative spiral for the bank has been worsened in recent days by the admission of having discovered “material weaknesses” in the same practices used to evaluate and monitor loans, news which triggered immediate rating downgrades below the investment grade threshold by Fitch and Moody’s. The bank’s assurances of having stable deposits, with almost 400 branches in seven states, were to no avail. Nor the decision to change at the top, where a new chief executive, Alessandro DiNello, took the reins last week.
The Fed’s concerns
The health of the banking sector and its supervision were also at the center of statements by the chairman of the Federal Reserve Jerome Powell to the US Congress, this time however to take into account the resistance of the giants of the sector to increased burdens. On the sidelines of a biannual hearing on monetary policy, Powell indicated that significant changes are planned in proposals to strengthen capital requirements at the largest institutions, in response to criticism over the costs and potential economic impact of the so-called Basel III endgame.
Marco Valsania
Journalist