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This Crisis Will Fuel Gold’s Continued Rise To New All-Time Highs

Four private equity firms have together spent a reported $1.05 billion to buy stock in the ailing New York Community Bancorp (NYCB).

On 31 January, NYCB’s share price plunged by a record 38 percent after the company announced it would make sharp cuts to its stock dividend and hoard cash. NYCB holds a hefty portfolio of commercial real estate loans, an increasing number of which are troubled.

The news sank the company’s stock to $6.47, its lowest ever, and dragged the KBW Regional Banking Index to its worst day since the March 2023 collapse of Signature and Silicon Valley banks.

Then on 1 March, the company admitted that the bank’s executives had found “material weakness” in the way the company monitors and weighs risks in its loan portfolio. The company’s stock fell almost 26 percent on the news, closing at its lowest since 1996.

Six days later, NYCB reported its total deposits had slid from more than $83 billion in early February to $77.2 billion on 5 March as customers moved their money to safer places.

Fitch Ratings has cut the company’s credit rating to junk.

Now Hudson Bay Capital, Reverence Capital Partners, and Liberty Strategic Capital—created by Steve Mnuchin, Donald Trump’s former treasury secretary—have swooped in to buy more than $1.05 billion worth of the bank’s stock at $2 a share.

Liberty is putting $450 million into the purchase. Hudson Bay is in for $250 million and Reverence for $200 million. Liberty, which counts Saudi Arabia’s Public Investment Fund among its backers, will invest $450 million. Citadel Global Equities, an operation of the Citadel hedge fund, has invested an unspecified amount.

The investors paid $2 a share for the Bancorp common stock but also picked up options on convertible preferred stock that they can buy for $2. In addition, the new investors receive warrants allowing them to buy more shares later at $2.50 a share.

News of the deal sent NYCB’s stock price to $3.46.

The new investors have named Joseph Otting, U.S. Comptroller of the Currency under Trump, as the company’s new CEO. He replaces Alessandro DiNello, who became interim CEO on 29 February. DiNello returns to his place as non-executive chair of the board.

As part of the deal, Mnuchin, Otting, and two other executives of the private equity group will join Bancorp’s 12-person board, which the private equity investors plan to reduce to nine.

Mnuchin and Otting are long-time cronies. Mnuchin assembled a different gang of billionaires during the Great Recession to buy collapsed mortgage lender IndyMac and turned it into OneWest Bank, for which Otting was hired as CEO.

NYCB has been a key lender to owners of apartment buildings governed by stringent rent controls, which have cut landlords’ cash flow and shrunk their margins. The bank also has lent on offices in one of the regions hit hardest by remote work, which has sunk occupancy and rental rates.

“New York Community Bancorp’s $1-billion equity investment should ease concerns about the lender’s capital levels and management capabilities,” analysts at Bloomberg Intelligence wrote in a note.

“While NYCB’s junk-rated subordinated debt trades at distressed levels, higher capital will help absorb potential loan loss reserve increases if commercial real estate conditions worsen,” they added.

“While painful for existing shareholders”—who saw their equity diluted by a billion dollars—“it should quiet systemic concerns for NYCB,” analyst Christopher McGratty at Keefe, Bruyette & Woods wrote in his note. “This should help broader sentiment for the bank group.”

Source: Kingworldnews