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The new boss running New York Community Bancorp

New York Community Bancorp (NYCB) has recently been the center of speculation about its possible insolvency after acquiring $38.3 billion in commercial real estate loans from Signature Bank. As interest rates remained high and the bank faced higher regulatory burdens as it became a Category IV bank, concerns arose that NYCB may become the next failing regional bank.

In response, NYCB is taking steps to stabilize its operations, including a change in leadership. In early March of 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 can 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 lead OneWest Bank. Mnuchin led a team of investors to buy the failed IndyMac Bank out of insolvency in the wake of the Great Financial Crisis. He then merged several other troubled regional banks into a national bank that they renamed OneWest. OneWest became known as the “foreclosure machine” as it worked its way through the newly bought backlog of underwater mortgages.

In just over two months as CEO, Otting has already implemented significant changes at NYCB. He has replaced key executives such as the CFO, chief of staff and head of Commercial Real Estate Lending with former colleagues from OneWest and US Bank. He also thoroughly examined the loan portfolio, identifying the riskiest loans. “We conducted an in-depth due diligence review of the loan portfolio, including a review of the top 250 multifamily loans, the top 50 office loans and the top 50 non-office commercial real estate loans, and increased our loan reserve during the period. the quarter,” Otting said in the latest earnings call.

Otting’s political background could prove useful in his interactions with regulators. But it can also pose challenges, as evidenced by his previous heated arguments with Elizabeth Warren over his agency’s oversight of Wells Fargo following allegations of customer abuse in 2019. Otting’s primary strength lies in his ability to handle complex credit situations. He will need to continue to clean up NYCB’s balance sheet, add new reserves and build investor confidence that NYCB will emerge stronger from this crisis, following the example of OneWest rather than Signature.

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