Former Treasury Secretary Steve Mnuchin is making a big bet that regulators don't want NYCB to become the next SVB.
He and a group of investors inject fresh capital into troubled lender New York Community Bancorp (NYCB), days before the one-year anniversary of the government's seizure of California lender Silicon Valley Bank (SVB). completed a $1 billion transaction. His failure on March 10, 2023 caused widespread panic in the banking system.
Secretary Mnuchin seemed to want to make sure this was okay with regulators. He told CNBC he had “extensive” discussions with the Federal Reserve and the Office of the Comptroller of the Currency, and they supported the injection.
There are possible reasons for that. What regulators learned from the chaos of a year ago is that they want to resolve problems at individual banks before it's too late, and certainly before sudden foreclosures cause undue panic in financial markets. .
“Our response was not swift enough and our response was not effective enough,” Federal Reserve Chairman Jay Powell told senators on Thursday, referring to the Fed's oversight of SVB. The lesson was that “earlier and more effective interventions” are needed in the future.
Not only are private solutions typically preferable to public solutions for troubled lenders, but they are also cheaper for the broader banking system.
“From an FDIC perspective, any time you can have an open banking solution that doesn't involve the Deposit Insurance Fund, that's a good thing,” Secura/Issac advisor Mitchell Glassman told Yahoo Finance.
“Nobody wants to take on that burden if they can avoid it,” added John Popeo, a financial consultant and former FDIC attorney.
Big banks paid billions of dollars in the fourth quarter to cover losses absorbed by the Federal Deposit Insurance Corporation in the failures of Silicon Valley Bank and New York financial institution Signature Bank, which was foreclosed on March 13. Ta.
Banks will likely have to pay billions more. The FDIC this week revised the total loss from the March 2023 bankruptcy by about $4 billion to $20.4 billion.
A concern plaguing banks in 2024 is whether lenders will have enough capital to handle expected losses from commercial real estate and half-vacant office buildings and apartment complexes that are no longer worth as much as they were before the pandemic. It has something to do with it. .
In testimony before lawmakers last week, Chairman Powell said the Fed was in contact with banks to ensure they had enough liquidity and capital to absorb losses from commercial real estate exposures.
“We're trying to stay ahead of each bank, and so far we've been able to do that,” he said.
“I believe it's a manageable problem,” he added. “If that changes, I say so.”
FDIC Chairman Martin Gruenberg told reporters Thursday that commercial real estate remains “a downside risk to the industry and certainly a top priority from a supervisory perspective for the FDIC and other banking institutions.” Told.
The irony of NYCB's woes in 2024 is that a year ago, NYCB agreed to act as a rescuer and absorb assets from Signature that had been seized by regulators. This brought the company's assets to more than $100 billion and increased scrutiny from regulators.
NYCB said these tightened requirements led to its decision on Jan. 31 to cut its dividend and set aside more for future loan losses. This disclosure marked the beginning of a decline in stock prices that did not stop until Secretary Mnuchin announced the relief. .
The stock price rose 6% on the day the $1 billion injection was announced.
New York Central Bank's new CEO and former Comptroller of the Currency Joseph Otting told analysts on Thursday that the bank's business is one-third consumer, business and real estate. , said it would like to have a more diverse loan book.
Currently, more than 44% of the company's loans are for multifamily housing, including rent-regulated apartment complexes in New York City.
Achieving a better balance may require a more private solution for NYCB. “Without the possibility of further acquisitions or sales of CRE loans, that's going to be difficult,” Jonathan Winnick, CEO of Chicago-based Clark Street Capital, told Yahoo Finance.
Asked whether the bank would need to raise additional capital, Otting said the bank and its board needed “some time” to develop a “vision for the future of the bank.” .
He promised to share it when NYCB reports first-quarter earnings.
“There's a lot of work ahead, and the shape, timing and probability of success of a potential restructuring remain unknown,” Ebrahim Poonawalla, an analyst covering NYCB at Bank of America, said on Friday.
As a reminder, the stock fell 7% again on Friday, closing at $3.42 per share.
But Secretary Mnuchin and other investors remained invested and agreed to pay $2 a share.
David Hollerith is a senior reporter at Yahoo Finance, covering banking, cryptocurrencies, and other financial areas.
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