Why private equity has been involved in every recent bank deal

The
$1
billion-plus
injection
that


New
York
Community
Bank
announced
Wednesday
is
the
latest
example
of
private
equity
players
coming
to
the
need
of
a
wounded
American
lender.

Led
by

$450
million
from
ex-Treasury
Secretary
Steven
Mnuchin’s
Liberty
Strategic
Capital,
a
group
of
private
investors
are
plowing
fresh
funds
into
NYCB.

The
move
soothed
concerns
about
the
bank’s
finances,
as
its
shares
closed
higher
on
Wednesday
after
a
steep
decline
earlier
in
the
day.

That
cash
infusion
follows
last
year’s
acquisition
of
PacWest
by
Banc
of
California,
which
was
anchored
by

$400
million
from
Warburg
Pincus
and
Centerbridge
Partners.
A
January
merger
between
FirstSun
Capital
and
HomeStreet
also
tapped

$175
million
from
Wellington
Management.

Speed
and
discretion
are
key
to
these
deals,
according
to
advisors
to
several
recent
transactions
and
external
experts.
While
selling
stock
into
public
markets
could
theoretically
be
a
cheaper
source
of
capital,
it’s
simply
not
available
to
most
banks
right
now.

“Public
markets
are
too
slow
for
this
kind
of
capital
raise,”
said

Steven
Kelly
of
the
Yale
Program
on Financial Stability.
“They’re
great
if
you
are
doing
an
IPO
and
you
aren’t
in
a
sensitive
environment.”

Furthermore,
if
a
bank
is
known
to
be
actively
raising
capital
before
being
able
to
close
the
deal,
its
stock
could
face
intense
pressure
and
speculation
about
its
balance
sheet.
That
happened
to
Silicon
Valley
Bank,
whose

failure
to
raise
funding
last
year
was
effectively
its
death
knell.

On
Wednesday,
headlines
around
noon
that
NYCB
was

seeking
capital
sent
its
shares
down
42%
before
trading
was
halted.
The
stock
surged
afterward
on
the
news
that
it
had
successfully
raised
funding.

“This
is
the
unfortunate
lesson
from
SVB,”
said
an
advisor
on
the
NYCB
transaction.
“With
private
deals,
you
can
talk
for
a
while,
and
we
almost
got
to
the
finish
line
before
there
was
any
publicity.”

Mnuchin
reached
out
to
NYCB
directly
to
offer
support
amid
headlines
about
the
duress
it
was
under,
according
to
a
person
with
knowledge
of
the
matter.
Mnuchin
isn’t
just
a
former
Treasury
secretary.
In
2009,
he
led
a
group
that

bought
California
bank
IndyMac
out
of
receivership.
He
ultimately
turned
the
bank
around
and
sold
it
to
CIT
Group
in
2015.

Now,
with
the
assumption
that
Mnuchin
and
his
co-investors
have
seen
NYCB’s
deposit
levels
and
capital
situation
—
and
are
comfortable
with
them
—
the
bank
has
much
more
time
to
resolve
its
issues.
Last
week,
NYCB
disclosed

“material
weaknesses”
in
the
way
it
reviewed
its
commercial
loans
and
delayed
the
filing
of
a
key
annual
report.

“This
buys
them
a
ton
of
time.
It
means
the
FDIC
isn’t
coming
to
seize
them
on
Friday,”
Kelly
said.
“You
have
a
billion
dollars
in
capital
and
a
huge
endorsement
from
someone
who
has
seen
the
books.”

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