2024-03-14 10:34:00
JOHN FOLEY / REUTERS BREAKINGVIEWS 14.03.2024 • 12:34
Souffle is a difficult dish. It can be beautifully puffed or cut. Bailout of a bank is somewhat similar. Former US Treasury Secretary Steven Mnuchin is trying to follow the recipe with his $1 billion campaign for troubled New York bank New York Community Bancorp (NYCB), which in just over 30 days lost 80% of its value. He has already proven his ability in this field. In any such situation there are three things to consider, namely, the appropriate price for the bank’s loans and other assets, its financing and management. The method was faithfully applied by the former minister in 2009, when he bought the IndyMac mortgage bank with a mountain of poorly documented loans, high-interest deposits and discredited management.
Hard-working buyers managed the risks and redefined IndyMac, which was renamed OneWest through acquisitions. Mnuchin and his partners more than doubled their money by the time IndyMac was sold to rival CIT in 2015.
What makes such an effort have a high chance of success? Price matters, although it is not a simple matter. Any investor looking for a profitable deal, but also a very low valuation, suggests that the bank is in dire straits. Steven Mnuchin is happy to take a risk. His investment in NYCB values it at about 1/3 of its book value and is at a deep discount to the stock’s trading price. NYCB, in addition to losses in the fourth quarter, also has internal problems. He replaced its chief executive just days before the former minister appeared.
A non-aggressive buyer can make a difference in management. Mnuchin replaced Joseph Otting, who also ran IndyMac after it was bailed out in 2009 and transformed into OneWest. More importantly, the two men can restructure NYCB by reducing its exposure to apartment buildings, which is almost 50% of its total loans. Selling a US bank that has over 2,000 of them is probably easier than the EU. or Japan. IndyMac is a great precedent for Steven Mnuchin, so all of its ingredients are familiar. As with a soufflé, however, success requires timing, patience and perfect execution. Already, today NYCB stock is roughly double its March 6 nadir, before Mnuchin’s intervention.
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