Steve Mnuchin’s $1 billion coup

Steven Mnuchin is known for making a killing in the wake of the 2008 financial crisis by investing in the troubled banking industry. This week he led a cash infusion of more than $1 billion into New York Community Bancorp—and his group is already in the green (by a lot).

The paper gains are more than $1 billion, as NYCB’s stock bounced on the heels of the transaction’s announcement. Liberty Strategic Capital, the firm founded by the former Treasury secretary, linked up with firms including Hudson Bay Capital, Milton Berlinski’s Reverence Capital Partners and Ken Griffin’s Citadel Global Equities.

NYCB has faced drastic stock swings and downgrades by key credit raters in the past few months. Joseph Otting, the former comptroller of the currency who worked with Mnuchin in the Trump administration, is taking over as chief executive officer. He’s pledged to tone down the bank’s outsize exposure to commercial real estate.

To analysts this week NYCB’s top leaders cautioned that a fresh plan could take time to come together, with more updates available closer to a late April earnings call. “These capital deals come together very quickly,” outgoing CEO Sandro DiNello, who’s staying on as nonexecutive chairman, told analysts. “So to think that we could possibly come to you today and say, ‘Hey, here’s how everything’s going to be going forward.’ That would be unrealistic.”

The investor group lends credibility to NYCB’s future, but big questions remain. “There is heavy lifting ahead,” Bank of America analysts wrote in a note to clients. “The shape, timing and the probability of success of any potential turnaround remains an unknown.” The analysts reduced expectations for NYCB’s earnings next year given the new special dividend payments expected for the new investors.

NYCB’s leaders also gave some statistics to soothe the market. Otting told the analysts that deposits through the middle of the week had dropped by only about 5% since the end of last year, which is much better than many investors expected.

Yet one analyst pointed out that the ratio of loans to deposits is still high. Otting drew on his own expertise in response. “We’ve proven historically to be able to build out a fairly sizable commercial-industrial portfolio of middle-market companies,” he said. “And as you know, that generally will result in relationship deposits that would come into the bank.”

The influx of money into the latest struggling lender seemed to put a floor to the declines we’ve seen in the regional banking system. The KBW Bank Index has jumped this week more than any other week this year.

Credit Card Gut Check

If you think the country is deep in debt, take a look at the average American household. Debt balances surged to $17.5 trillion through the end of last year. That’s almost $3.5 trillion more than at the end of 2019, before the Covid-19 downturn.

Home equity lines of credit expanded over the past two years after a decade of decreases, according to a recent report by the Federal Reserve Bank of New York. Credit card debt has surpassed $1 trillion, and limits increased for the 11th straight quarter.

“It’s certainly sending a message about the state of the consumer, who’s had to deal with the worst inflation we’ve seen since the ’80s. Part of the way they dealt with that is increasing the amount of debt—specifically on credit cards,” LendingClub CEO Scott Sanborn told me this week in a Bloomberg Television interview. “The rates they’re paying are the highest it’s ever been since the Federal Reserve started measuring this back in 1994.”

The problem isn’t the debt alone but its cost. The average credit card interest rate jumped to 22.8% in 2023, compared with 12.9% a decade earlier. Almost half of the largest issuers reported offering cards with annual percentage rates above 30%, according to a recent report by the Consumer Financial Protection Bureau.

“Half of all Americans don’t know the APRs on their cards. That’s not how they shop, right? They shop for their awards and affinity programs,” Sanborn said. “Credit cards are a very convenient way to pay. The problem is if you don’t pay it off, which as I mentioned half of all Americans aren’t, you have a loan. And it’s a really, really lousy loan.”

The CFPB this week announced a final rule to cut credit card late fees that it thinks will save Americans $10 billion annually—on average $220 a year for more than 45 million people who have been hit by those charges. Fed data have also shown delinquencies rising, though not to alarming levels.

“The stakes are high for the millions of Americans who swipe, tap, or input their credit card information online,” the bureau said, highlighting that it’s taking new actions to try to protect consumers. It alleges that a lack of competition is contributing to higher interest rates, particularly among the largest credit card companies.

The CFPB’s research provides fresh ways to look at the Capital One-Discover deal, which has received some pushback from lawmakers on both sides of the aisle. Fed Chair Jerome Powell in his testimony to Congress this week said the central bank hasn’t yet received an application for that merger.

ICYMI

The latest issue of Businessweek includes my profile of the Carlyle Group’s Meg Starr and her efforts to quantify private equity’s sustainability efforts. “We can go out and talk all we want about how carbon efficiency leads to better valuation multiples, but unless we have a statistically significant dataset,” Starr says, “we don’t actually know.”

Read on for more on how she created that dataset, the ESG Data Convergence Initiative, with help from rival firms, and how Starr herself isn’t actually a fan of the term “ESG.”

More to come. To find this newsletter online, you can do that here. To sign up for Bw Daily, for which I write every Friday, you can do that here. Tips, opinions and ideas are so very welcome at [email protected].