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Mnuchin's Bail Out of NYCB Now Bailed Out by JPM & the Fed -- Hidden Bankruptcies behind Biden's Fake Economy

As we reported on March 6, 2024, Steve Mnuchin’s Liberty Strategic Capital and Hudson Bay Capital as well as Citadel funded the effective takeover of New York Community Bank (NYCB).  Their strategy was to inject equity capital to relieve the bank of the highly leveraged and precarious situation.

However, what Mnuchin clearly didn’t fully recognize how bad things are getting – he was drinking the liberal kool-aid of a no landing, recession free, modern monetary theory magical carpet ride. Instead, his misplaced faith in New York real estate is turning into a bet gone bad.  

Last week Fitch downgraded NYCB to BB from BB+ reflecting the declining situation.

Then reports today reveal JPMorgan executed a mini-bailout buying $5 billion in NYCB’s mortgage warehouse loans – we can be confident that JPMorgan (JPM) overpaid for the loans to help NYCB while working closely with the Fed and Treasury.

So Mnuchin first rode in to save Biden, and now needs saving from Dimon – but even after this purchase, Mnuchin isn’t out of the woods.  According to an article posted today in Risk.net, NYCB also resorted to repurchase agreements and US Federal Reserve facilities to bolster liquidity.

The Long Island-based lender tapped $2 billion of repos during the first quarter, sourced both through brokers and the Federal Home Loan Bank (FHLB) system. These repos were collateralised primarily by agency-backed securities.

The Risk article further reports NYCB made additional advances from FHLB, increasing its obligations by 18.8% to $22.8 billion over the period, and, for the first time since 2012, borrowed $4 billion from the Fed’s discount window in April.  $1 billion from the Fed’s Bank Term Funding Program remained outstanding as of March.

Including the discount window drawdowns, wholesale borrowing increased by 46.7% to $29.7 billion compared to December – the most ever taken on by the bank. This borrowing amounts to 27% of NYCB’s total liabilities.

As of March, $8.6 billion worth of NYCB’s securities, or 93%, was pledged, compared with $2.8 billion, or 31%, in December. The Risk.net statistics are not yet adjusted for the warehouse loan sale to JPM and that sale does reduce the leverage of NYCB.

The effort by Mnuchin to save Biden from a large bank failure has now increased taxpayer risk enormously as the cost of these government lending facilities is 5% or higher – and therefore much more expensive than typical deposits NYCB relied on.  The JPM bailout was meaningful – and is the next effort at kicking this can past the election.

The increased borrowing from the Fed and FHLB, and use of large private banks captured by the government, is a travesty– a government subsidized boondoggle all to bail out a bank that should have had its equity wiped out and been properly foreclosed upon. 
 
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