Proactive Investors - New York Community Bancorp (NYSE:NYCB) shares have advanced slightly in pre-market trading on Thursday, following a dramatic day when the shares crashed over 40% before a highly discounted $1 billion investment by a consortium led by former treasury secretary Steve Mnuchin.
Shares in NYCB were up 4.6% at $3.62, after yesterday starting at $3.20, almost halving to $1.70 after the Wall Street Journal reported that it was looking to raise capital, trading was halted and then after the investment was announced, rising to $4.40 and closing at $3.46 for a 7.45% gain.
The $1 billion investment was agreed at a price of $2 per share, with Mnuchin's Liberty Strategic Capital investing $450 million, along with a group of hedge funds and private equity groups and members of the management team.
Mnuchin, a Goldman Sachs (NYSE:GS) alumni who in 2009 also led a group that bought collapsed regional lender IndyMac at a big discount to its book value and transformed this into OneWest Bank before selling out, is joining the board and bringing in former Trump administration colleague Joseph Otting as CEO of NYCB, having worked with him in the Treasury as Comptroller of the Currency, and also previously appointed him to lead OneWest.
Analyst reaction
There had been a "considerable amount of pressure" on NYCB shares since its earnings at the end of January, said Deutsche Bank (ETR:DBKGn), with the shares down 65-70% since as investors were spooked by not only a surprise loss and a dividend cut to preserve capital, but also commercial real estate exposure, refinance risk in multi-family real estate properties.
"Subsequent news on material weakness in internal controls and the resignation of the CEO, led to further credit rating downgrades which put further pressure on shares," said Deutsche in a note.
"While the deal does add considerable dilution which includes a series of warrants, we sense that investors have been looking for an outside capital raise to sure up the balance sheet and to improve sentiment on the stock."
JP Morgan (NYSE:JPM) analysts said: “While the list of investors injecting capital into the company is certainly impressive, with more questions than answers remaining at this juncture we wait on the sidelines for the coming conference call.”
The terms to this PIPE deal (private investment in public equity) are "vague", agreed Jefferies, but assuming all $1 billion fully converts to common shares, a $6.73 tangible book value is derived, 34% dilution, and around 100 basis points boost to CET1 ratio to 10.2%.
While there was no update provided on deposits and credit quality, this "smart money" capital raise plus changes to the board "should take [the] bear case off [the] table", Jefferies analyst Casey Haire said in a note.
The capital raise "implies a modest cumulative loss pool relative to some bear case scenarios we have heard from investors", Haire added, with the statement from NYCB indicating its credit profile was a key consideration, and the investment group believes NYCB now has "sufficient capital should reserves need to be increased in the future."