Steve Mnuchin, Trump’s Treasury Secretary/Foreclosure Kingpin, Joins with Hedge Fund Guys to Grab a Teetering, Federally-Insured Bank for $2 a Share

[Gunnar Larson]

https://wallstreetonparade.com/2024/03/steve-mnuchin-trumps-treasury-secretary-foreclosure-kingpin-joins-with-hedge-fund-guys-to-grab-a-teetering-federally-insured-bank-for-2-a-share/


By Pam Martens and Russ Martens: March 7, 2024 ~

Former Trump Treasury Secretary, Steve Mnuchin, has teamed up with his pals
from his days as a foreclosure kingpin at OneWest and assorted hedge
funds/private equity guys, to pull a coup d’etat at the teetering New York
Community Bancorp (NYCB), parent of Flagstar Bank.

A press release from NYCB yesterday confirmed that Mnuchin and his pals
would be injecting $1 billion in equity at a purchase price of $2 a share
for NYCB, massively diluting existing shareholders whose share price on the
last trading day of last year was $10.23. (For why shares of NYCB have been
in free fall this year, see our report on Tuesday: New York Community
Bancorp Was JPMorgan’s Top Regional Bank Pick for 2024; It’s Lost 73
Percent Y-T-D and Had Its Deposit Rating Downgraded to Junk.)

Buttressing Mnuchin’s audacity, he will put himself and three of the other
investing pals on the Board of NYCB, giving his team four votes on a Board
he plans to shrink from 12 members to 9, according to the press release.

In addition, Mnuchin’s foreclosure pal from his days at OneWest, Joseph
Otting (whom Trump had made the head of the Office of the Comptroller of
the Currency, the regulator of national banks) will become the CEO of NYCB,
replacing the existing CEO who just took his seat at the helm of NYCB last
Friday. (The bank is now changings its CEO as often as some people change
their socks.) Otting is to also have a seat on the NYCB Board of Directors.

Trading in the shares of NYCB was so chaotic yesterday that the New York
Stock Exchange halted trading 13 times for reasons of limit-up or
limit-down, and once for news pending. The share price gyrated yesterday
from an all-time low of $1.70 to close at $3.46.

To grasp what is really going on here, we need to look back at what
happened at Mnuchin’s Senate confirmation hearing when President Donald
Trump picked him to become U.S. Treasury Secretary – a post which would
simultaneously make Mnuchin the head of the Financial Stability Oversight
Council (F-SOC), allowing him to approve or disapprove vast Wall Street
bailouts by the Federal Reserve. (See our previous report: The Language
Toomey Inserted into the Stimulus Bill Enshrines a $681 Billion Trading
Slush Fund for Mnuchin with the NY Fed.)

At Mnuchin’s confirmation hearing, Senator Ron Wyden of Oregon had this to
say about the practices of OneWest under Mnuchin:

“In early 2009, Mr. Mnuchin led a group of investors that purchased a bank
called IndyMac [which had also collapsed in share price], renaming it
OneWest. OneWest was truly unique. While Mr. Mnuchin was CEO, the bank
proved it could put more vulnerable people on the street faster than just
about anybody else around.

“While he was CEO, a OneWest vice president admitted in a court proceeding
to ‘robo-signing’ upward of 750 foreclosure documents a week. She spent
less than 30 seconds on each, and in fact, she had shortened her signature
to speed the process along. Investigations found that the bank frequently
mishandled documents and skipped over reviewing them. All it took to plunge
families into the nightmare of potentially losing their homes was 30
seconds of sloppy paperwork and a few haphazard signatures.

“These kinds of tactics were in use between 2009 and 2014, a period during
which the bank foreclosed on more than 35,000 homes. ‘Widow foreclosures’
on reverse mortgages – OneWest did more of those than anybody else. The
bank defends its record on loan modifications, but it was found guilty of
an illegal practice known as ‘dual tracking.’ One bank department tells
homeowners to stop making payments so they can pursue modification, while
another department presses on and hurtles them into foreclosure anyway.”

At the close of the confirmation hearing, Senator Wyden strongly suggested
that Mnuchin had lied on his personal financial disclosure form, stating
the following:

“Mr. Mnuchin, a month ago you signed documents and an affidavit that
omitted the Cayman Island fund, almost $100 million of real estate, six
shell companies and a hedge fund in Anguilla. This was not self-corrected.
The only reason it came to light was my staff found it and told you it had
to be corrected.”

The man the Mnuchin team has named as the new CEO at NYCB, Joseph Otting,
set hair on fire in banking circles while serving as the head of the Office
of the Comptroller of the Currency (OCC) in the Trump administration.

In July of 2018, the OCC announced that financial technology companies,
known as fintech, which provide various types of banking activities other
than accepting insured deposits, will now be allowed to apply for a special
purpose national bank charter and operate across state lines. The OCC
announcement promptly followed a report from the U.S. Treasury which
recommended that the OCC make the charter available.

The immediate impact of gaining such a charter was that online lenders, who
then had to abide by state-by-state limits on the amount of interest they
could charge on a loan to consumers, would be unleashed to fully channel
their predatory lending instincts.

The Superintendent of the New York State Department of Financial Services
(DFS), Maria Vullo, issued a statement that was highly critical of both the
OCC and Treasury actions. Vullo stated:

“The New York State Department of Financial Services fiercely opposes the
Department of Treasury’s endorsement of regulatory ‘sandboxes’ for
financial technology companies. The idea that innovation will flourish only
by allowing companies to evade laws that protect consumers, and which also
safeguard markets and mitigate risk for the financial services industry, is
preposterous. Toddlers play in sandboxes. Adults play by the rules…

“DFS also strongly opposes today’s decision by the Office of the
Comptroller of the Currency to begin accepting applications for national
bank charters from nondepository financial technology (fintech) companies.
DFS believes that this endeavor, which is also wrongly supported by the
Treasury Department, is clearly not authorized under the National Bank Act.”

Laws and rules were just pesky details during the Trump administration –
with the evidentiary support of the 91 felony counts the former President
is facing today.

Another OneWest Mnuchin pal moving to the Board of NYCB is Allen Puwalski,
the Chief Investment Officer and Managing Partner at Cybiont Capital.
Puwalski served as a Director on the Board of OneWest from 2009 to 2015.
Puwalski was also a former partner at John Paulson’s hedge fund, Paulson &
Company, from 2007 to 2018. It was during that period that the notorious
Goldman Sachs’ Abacus deal went down, where the hedge fund hand-selected
subprime mortgage debt it thought would fail for the Abacus offering, then
shorted it, making $1 billion for itself while costing unknowing Abacus
investors $1 billion. (See our report: Putting John Paulson on AIG’s Board
Is an Insult to Every Law-Abiding Citizen.)

Another Mnuchin investment team member who will join the NYCB Board is
slated to be Milton Berlinski, co-founder of Reverence Capital, which is
chipping in $200 million of the $1 billion equity infusion. Mnuchin’s
private equity firm, Liberty Strategic Capital, is providing $450 million
to the deal. Like Mnuchin, Berlinski was a long-tenured veteran of Goldman
Sachs, working there for 26 years. Mnuchin’s tenure at Goldman Sachs was 17
years.

In addition to buying up common stock in NYCB at close to a record low
share price, Mnuchin’s team is getting lots of other goodies. Yesterday’s
press release includes the following terms:

“In connection with the equity capital raise transactions, NYCB will sell
and issue, in the aggregate, to the Investors approximately (i) 59,750,000
shares of common stock, par value $0.01 per share, of the Company at a
price per share of $2.00, (ii) 192,062 shares of a new series of preferred
stock, par value $0.01 per share, of the Company designated as Series B
Noncumulative Convertible Preferred Stock at a price per share of $2,000
and with a conversion price of $2.00, and (iii) 273,188 shares of a new
series of preferred stock, par value $0.01 per share, of the Company
designated as Series C Noncumulative Convertible Preferred Stock at a price
per share of $2,000 and with a conversion price of $2.00, for an aggregate
investment amount of $1.05 billion. In addition, investors will receive
7-year warrants to purchase non-voting, common-equivalent stock of the
Company representing $315 million of underlying shares of common stock of
the Company with an exercise price of $2.50 per share, a 25% premium to the
price paid on common stock. Upon completion of the transactions, the
aggregate shares issued to the Investors are expected to represent
approximately 41.4% of the outstanding shares of Company on an as converted
fully diluted basis.

“Holders of the preferred stock will not have voting rights and will be
entitled to quarterly non-cumulative cash dividends, as and if declared by
the Board. Each share of preferred stock is convertible into common stock
on a 1 preferred share – 1,000 common shares basis. Series B preferred
stock will automatically convert upon certain transfers permitted by
federal banking regulations, while Series C preferred stock will
automatically convert upon the achievement of certain trigger events
related to receipt of antitrust clearance under the Hart Scott Rodino Act
and shareholder approval. The Company will provide customary shelf and
piggyback registration rights to each of the Investors. Additionally,
Liberty and Reverence will also have the ability to request an underwritten
shelf take-down and block trade rights.”

The key passage in the above verbiage is this: “Upon completion of the
transactions, the aggregate shares issued to the Investors are expected to
represent approximately 41.4% of the outstanding shares of Company on an as
converted fully diluted basis.” To put that another way, for $1 billion,
Mnuchin’s team is getting 41 percent of a federally-insured, regional bank
that had a market value of $9.8 billion less than one year ago.
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