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The number of distressed banks in the US jumped 18 per cent, as New York Community Bank stabilized thanks to a $1 billion capital raise led by former US Treasury Secretary Steven Mnuchin, regulators warned.
Twelve months after the Silicon Valley bank failure rocked the regional banking sector, the New York central bank's recent struggles have highlighted the continuing fragility at some US lenders.
The number of weak U.S. banks rose by eight to 52 in the final three months of 2023, the largest jump since the demise of SVB, the Federal Deposit Insurance Corp. said Thursday.
The FDIC said loan defaults on credit cards and commercial real estate loans are on the rise and are now at their highest level in nearly a decade.
“Persistent economic and geopolitical uncertainty, persistent inflationary pressures, fluctuations in market interest rates, and emerging risks in certain banks’ commercial real estate portfolios pose significant downside risks to the banking industry,” FDIC Chairman Martin Gruenberg said in a statement.
NYCB, a mid-sized U.S. bank with assets of more than $100 billion that was not listed on the FDIC list, experienced losses in its mortgage portfolio after nearly doubling in size in the past 18 months through two deals. Two quick mortgage loans. Competitor banks.
The bank's shares rose on Thursday after its new management team told analysts that it would work to diversify its loan sources away from loans directed at residential buildings, many of which are subject to New York's strict rent control laws and have caused many of the bank's problems.
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Mnuchin and Joseph Otting, a former regulator who served as CEO of the Commercial Bank of New York, have a history of rebuilding troubled lenders: They bought failed mortgage bank IndyMac from the FDIC in 2008, restructured it and sold it to CIT in 2015.
Investors, including Mnuchin, a former Goldman Sachs banker who served in the Trump administration, are expected to make hundreds of millions of dollars in paper profits if stocks maintain their gains after the capital raise is announced.
Analysts at Wedbush noted that their cash infusion at $2 per share was “significantly dilutive” to other shareholders, but helped stabilize the bank and boost the stock price. Shares were trading 8 percent higher at $3.74 Thursday afternoon, and are still down more than 60 percent this year.
Hudson Bay Capital, Reverence Capital Partners and hedge fund Citadel are co-investing in the deal, which will close on Monday.
Otting told analysts that his goal of diversification would result in the bank thriving “through economic fluctuations,” but he offered few details on how that would be achieved and said the turnaround could take years.
Bank of America analysts said the capital increase and new leadership should “provide breathing room” for the bank. “These actions should alleviate investors’ concerns about the ability of the New York Mercantile Bank to weather the current crisis,” they wrote.
The FDIC does not name individual banks on its list of problem banks. But the data indicated that the banks on the list were either small or medium-sized lenders. The total assets of all banks on the list of troubled banks at the end of last year amounted to $66 billion, or about 0.2 percent of the total banking sector.
