A $1 billion capital infusion and leadership overhaul helped stanch the deteriorating situation at New York Community Bancorp Inc. and now the investment community awaits the company's next move.
The Hicksville, NY-based company announced a capital raise on March 6, which included a combined investment of more than $1 billion made by Liberty Strategic Capital, a fund led by former US Treasury Secretary Steven Mnuchin; Hudson Bay Capital Management LP; and Reverence Capital Partners LP; with participation from Citadel Global Equities and the company's management. The capital raise announcement — which also noted that former Comptroller of the Currency Joseph Otting would take over as CEO — helped stem an outflow of deposits and boost the company's stock price, which closed up 8.07% on March 6 after falling more than 40% following reporting from The Wall Street Journal that the company was seeking recapitalization.
The capital and investor base's credibility gives management "the time and flexibility to engineer a turnaround," BofA Securities analyst Ebrahim Poonawala wrote in a March 7 note.
These "events should stabilize what has been a rapidly deteriorating situation," Piper Sandler analyst Mark Fitzgibbon wrote in a March 6 note. "It's too early to know the exact financial implications, but these are very positive developments."
The company plans to provide greater detail on its go-forward strategy when it holds its first-quarter earnings call in April. During a March 7 conference call, company leaders said New York Community is considering many strategic options. Analysts noted that some of the potential moves include further reserve builds and shrinking the commercial real estate book.
"This transaction shores up the capital, and we expect the new board will be aggressive in marking the loan portfolio as it would be able to absorb much higher credit loss," Peter Winter, managing director and senior research analyst at D.A. Davidson, wrote in a note on March 6.
However, if the company pursues such actions as loan sales, that runs the risk of depleting the capital it just raised, according to Raymond James analyst Steve Moss.
"The potential loss from loan sales is significant without sharply lower interest rates, and represents a significant risk to current shareholders," Moss wrote in a research report. "Said differently, we are not sure that the bank has raised sufficient capital."
Moss added that impending changes in the bank's operations and loan mix "will take an extended work out period that should impair earnings for the next couple of years."
Still, the company added more than just capital with the latest announcement. It also brought in talent that has some experience in bank cleanup jobs. Incoming CEO Otting and investor and new board member Mnuchin have worked together on turning around a bank in the past. After IndyMac Federal Bank F.S.B. failed in 2008, Mnuchin led an investor group that bought the bank for about $1.5 billion, renamed it OneWest, which Otting led as president and CEO. OneWest eventually sold to CIT Group in 2015 for $3.4 billion in cash and stock, and the deal helped make the OneWest investment one of the most successful private equity transactions in the bank sector during the financial crisis.
"This capital infusion coupled with adding several big names in the banking space to the Board of Directors should give both depositors and investors comfort that the company is in a sound financial position and that these astute investors have done sufficient diligence to determine that the company was worth investing in," Fitzgibbon wrote.
While the track record of the investor group can provide shareholders with some reason for optimism over the longer term, the capital raise does come with some near-term drawbacks, such as dilution to tangible book value (TBV) and common stock.
Wedbush analyst David Chiaverini estimates the deal will double the company's outstanding common shares to around 1.5 billion shares and result in pro forma TBV of $6.00 a share, down from $10.03 a share at Dec. 31, 2023, he wrote. Jefferies analysts Casey Haire and Ken Usdin estimate TBV of $6.37 a share, or 34% dilution, they wrote.
"Although there will be significant TBV dilution to existing shareholders, we believe that a transaction of this type was necessary," Piper Sandler's Fitzgibbon wrote.
