Regulators warned that the number of US problem banks has increased by 18%, while New York Community Bank, led by Steven Mnuchin, former US Treasury Secretary, stabilised itself with a $1bn in capital raised.
The recent struggles of NYCB have highlighted the continued fragility among some US lenders, 12 months after Silicon Valley Bank’s failure shook the region’s banking sector.
Federal Deposit Insurance Corporation said on Thursday that the number of US weak banks has risen from 48 to 52 during the last three months of 2023. This is the largest jump since SVB’s demise.
The FDIC reported that delinquencies on credit cards and commercial real estate loan were increasing and now were at their highest level in nearly a decade.
Martin Gruenberg, FDIC chairman, said that “continuing economic and geopolitical uncertainties, continued inflationary pressures and volatility in interest rates on the market, as well as emerging risks in certain bank commercial real estate holdings, pose significant downside risk to the banking industry”.
Losses in its real estate portfolio hit NYCB, an American mid-sized lender with assets of more than $100bn, but not listed on the FDIC’s list. It almost doubled the size of its loan portfolio in 18 months by completing two quick deals for rival banks.
The bank’s shares rose Thursday after the new management told analysts that it would diversify its lending away from apartment buildings. Many of these are subject to New York rent control laws and have been a major source of problems for the bank.
Mnuchin, who is now the NYCB CEO, and Joseph Otting (the former regulator) have experience in rebuilding troubled banks: in 2008 they purchased the failed mortgage lender IndyMac, from the FDIC, restructured the company and sold it to CIT.
Mnuchin is a former Goldman Sachs Banker and served in the Trump Administration. If the shares continue to rise after the capital raising announcement, investors will make paper profits of hundreds of millions.
Analysts at Wedbush said that their injection of $2 per share was “tremendously dilutive” for other shareholders but it helped stabilize the bank and increase the stock price. The shares rose more than 5% to $3.66, but are still down more than 60% this year.
Hudson Bay Capital, Reverence Capital Partners, and hedge fund Citadel have all invested in the deal that closes Monday.
Otting said that his goal was to diversify the bank so that it would prosper “through economic fluctuations”. He gave little detail on how he planned to achieve this and stated that the transition would take many years.
Bank of America analysts stated that the new leadership and capital raising should “provide breathing space” to the Bank. The actions taken should ease investor concerns regarding NYCB’s capability to navigate through the current crisis, they wrote.
The FDIC does name individual banks that are on the list of problem banks. The data showed that banks on the problem bank list were small and mid-sized lenders. At the end of 2012, the total assets of the banks listed on the list of problem banks was $66bn or 0.2 percent of the entire banking sector.