Propmodo Daily

By Franco Faraudo · May 13, 2024

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New York Community Bancorp (NYCB) has appointed Joseph Otting as CEO to address its financial difficulties. Otting, experienced in managing distressed assets and a former colleague of NYCB's lead investor Steven Mnuchin, is working to stabilize the bank by reviewing its loan portfolio and replacing key executives. In today's email, we'll examine how Otting's political background could both help and hinder his efforts to restore investor confidence in NYCB's future.

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Now, let's dig in!

The New Boss Running New York Community Bancorp

New York Community Bancorp (NYCB) has recently been the focus of speculation regarding its potential insolvency after acquiring $38.3 billion in commercial real estate loans from Signature Bank. As interest rates remained high and the bank faced increased regulatory expenses due to becoming a Category IV bank, concerns arose about NYCB potentially becoming the next failing regional bank.

In response, NYCB is taking steps to stabilize its operations, including a change in leadership. At the beginning of March this year, NYCB appointed a new CEO, Joseph Otting, as part of a $1 billion investment. Otting is an experienced banker and regulator, but his appointment may be attributed to his relationship with the lead investor, former US Treasury Secretary Steven Mnuchin. Otting, like Mnuchin, served in the Trump administration as Comptroller of the Currency from November 2017 until his abrupt resignation in May 2020.

Mnuchin and Otting go way back. Otting worked closely with Mnuchin when he was hired to run OneWest Bank. Mnuchin led a team of investors to buy the failed IndyMac bank out of insolvency in the aftermath of the Great Financial Crisis. He then rolled up several other struggling regional banks into a national one that they renamed OneWest. OneWest became known as the “foreclosure machine” as it worked its way through its newly bought backlog of underwater mortgages.

In just over two months as CEO, Otting has already made significant changes at NYCB. He has replaced key executives like the CFO, Chief of Staff, and Head of Commercial Real Estate Lending with former colleagues from OneWest and US Bank. He has also thoroughly reviewed the loan portfolio, identifying the riskiest loans. “We completed an in-depth due diligence of the loan portfolio, including a review of the top 250 multi-family loans, the top 50 office loans, and the top 50 non-office commercial real estate loans, and increased our credit reserve during the quarter,” Otting stated in the last earnings call.

Otting's political background may prove helpful in his interactions with regulators. But, it could also create challenges, as evidenced by his past heated exchanges with Elizabeth Warren over his agency's oversight of Wells Fargo following customer abuse allegations in 2019. Otting's primary strength lies in his ability to navigate complex lending situations. He will need to continue cleaning up NYCB's balance sheet, adding new reserves, and instilling confidence among investors that NYCB will emerge from this crisis stronger, following the example of OneWest rather than Signature.

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