Investors Led by Ex-Trump Official Invest $1 Billion to Troubled US Bank

By Quincy Cahilig

Mar 09, 2024 06:18 AM EST

Steven Mnuchin, the US Treasury Secretary under former president Donald Trump, has invested in the New York Community Bank (NYCB). This troubled regional US bank recently disclosed a loss related to loans tied to office buildings, resulting in a significant drop in its share price. 

Former United States Secretary of the Treasury Steven Mnuchin (L) arrives for trial at Federal Court on October 20, 2022 in the Brooklyn borough of New York City. (Photo : David Dee Delgado/Getty Images) 

Steven Mnuchin Is Backing Troubled Regional US Bank

In response, NYCB raised over $1 billion in a fundraising effort that included Steven Mnuchin's firm, Liberty Strategic Capital. The Liberty Strategic Capital is reportedly investing $450 million, and Mnuchin will have a board seat in the bank. 

According to BBC, the move aims to restore confidence and address concerns over property loans. The bank has witnessed leadership changes, with former bank regulator Joseph Otting becoming the new CEO. NYCB revealed unanticipated losses in late January, causing a share sell-off and banking problems.

Last week, the bank found "material weaknesses" in its loan assessment systems, worsening the situation. After these issues, Mnuchin, who oversaw the 2008 financial crisis with IndyMac, invested in NYCB.

According to Axios, Sandro DiNello, who has been NYCB CEO for a brief period, the investment would ensure "a strong balance sheet and liquidity position" for the bank.

Mnuchin, who founded the Liberty Strategic Capital after leaving the Trump administration in 2021, emphasized his firm's awareness of the bank's credit risk profile when investing $450 million. The raised capital is deemed sufficient to cover potential future increases.

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NYCB Situation Closely Monitored

Investors are wary of another crisis involving a regional US lender nearly a year after Silicon Valley Bank's collapse. Analysts closely monitor NYCB's challenges, anticipating potential issues for lenders exposed to office and apartment property loans.

Estimates suggest that 14% of all loans and 44% of office loans in the US are tied to properties valued lower than their outstanding debt. These challenges coincide with a decline in property values due to the pandemic and a concurrent increase in borrowing costs.

NYCB, a century-old bank in Hicksville, Long Island, has grown from a local lender to a mortgage and property lending giant.

According to the Financial Times, it became the 33rd largest US bank by assets after two swift purchases of Flagstar Bank and Signature Bank's residual assets, which collapsed in March. The bank's shares nearly doubled after acquiring Signature Bank, which was initially well-received.

NYCB immediately encountered issues from a worsening credit climate in commercial real estate, wherein it had significant exposure and fixed-rate loans yielding lower than benchmark interest rates. The bank grew after the Flagstar and Signature transactions, increasing regulatory scrutiny.

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