Steven Mnuchin cashes in on a banking crisis . . . again

Two scoops to start, first: JPMorgan Chase spent more than a year discussing a possible deal with Discover Financial before Capital One agreed a $35bn bid for the credit card company, as the largest US bank pursued ways to get control of Discover’s Pulse electronic payments network. Read the full story.

And: Bayer chief executive Bill Anderson has ruled out a fresh capital increase as he battles investor scepticism over his plan to turn around the indebted and litigation-stricken German drugs and pesticides maker. 

In today’s newsletter: 

• Mnuchin profits from NYCB crisis

• A look at the ‘eccentric’ company behind Temu

Trump’s Treasury secretary finds opportunity in NYCB’s rescue

Steven Mnuchin is on track to earn his first big windfall since returning to Wall Street after serving as Donald Trump’s Treasury secretary. 

Mnunchin on Wednesday led a deal to pump more than $1bn into New York Community Bancorp to rescue the US regional lender that quickly fell into financial trouble after acquiring Signature Bank from the Federal Deposit Insurance Corporation last year.

On paper, Mnuchin has made hundreds of millions of dollars in a single day, while other investors in the deal such as hedge fund Hudson Bay Capital and private equity firm Reverence Capital are also sitting on large windfalls.

The investor group struck a deal to buy $1bn in common and convertible preferred stock in NYCB at a price of $2 per share, an equity infusion designed to shore up the struggling bank’s capital.

The investment proved vital after NYCB looked like it risked circling the drain after a 40 per cent collapse in its share price around midday on Wednesday. But Mnuchin’s deal revived confidence in the lender, which soared from below $2 per share when the deal was announced to close at $3.46.

Liberty Strategic Capital, the private equity firm Mnuchin founded in 2021 after leaving the Trump administration, committed to invest $450mn, while Hudson Bay will invest $250mn, and mid-sized private equity group Reverence Capital will invest $200mn. Citadel and some other unnamed investors will collectively invest about $100mn.

The group of investors stand to make money beyond the capital infusion. They hold warrants for up to 60 per cent of their investment at a strike price of $2.50 a share, meaning those could be sold for large gains.

In sum, the investor group has seen gains of about $650mn collectively, DD’s Sujeet Indap calculates. 

“With the over $1bn of capital invested in the bank, we believe we now have sufficient capital should reserves need to be increased in the future to be consistent with or above the coverage ratio of NYCB’s large bank peers,” Mnuchin said in a statement.

The deal is subject to the “finalisation of definitive documentation and receipt of applicable regulatory approvals”, according to a press release, and there is no guarantee NYCB will hold on to its gains.

Mnuchin also won’t be making the windfall himself. To raise money for his group, he tapped familiar friends of the Trump administration.

Saudi Arabia’s Public Investment Fund and Masayoshi Son’s SoftBank have invested in his firm.

Finding opportunity in a troubled lender is familiar terrain for Mnuchin. After rising through the ranks at Goldman Sachs, he made his fortune reviving IndyMac after it was one of the largest US bank failures during the 2008 crisis.

The lender, renamed OneWest Bank, was eventually sold to CIT Group, a lucrative deal for Mnuchin.

Some of Mnuchin’s colleagues at Goldman and in Washington will play a big role in his bet on NYCB.

Joseph Otting, who Mnuchin hired to run OneWest and eventually joined the Trump administration as Comptroller of the Currency, will become NYCB’s new chief executive, replacing Alessandro DiNello, who had been in the role for less than a week.

Reverence Capital, an investor in Mnuchin’s deal, is led by Milton Berlinski, who founded Goldman’s financial institutions group and overlapped with the future Treasury secretary.

Since a spate of bank failures last March, financial regulators have been studying whether Trump’s deregulatory agenda created blind spots.

For now, Mnuchin and Otting have at least uncovered a promising angle. 

The mysterious rise of the company behind China’s Temu

Has there ever been a weirder company to be valued at more than $150bn on the US stock market? 

If DD readers watched the Super Bowl last month they might have noticed a shopping app called Temu that ran the same advertisement as a year earlier, encouraging viewers to “shop like a billionaire”.

An online flea market, Temu has also carpet-bombed social media with a campaign centred around prices so cheap that “people may not believe it’s real”.

What the FT’s Dan McCrum discovered, in this deep dive, is that the company behind Temu, a self-described Chinese agricultural group called PDD Holdings is so unusual that even some of its most ardent supporters describe it as “eccentric”.

PDD’s founder has disappeared from sight hoping to become an assistant to a research scientist, it has two co-CEOs and no chief financial officer, and the three independent board directors include a former foreign minister for Singapore and a Dutch academic specialising in food safety. PDD employees use pseudonyms at work.

It is also duelling with rival Alibaba to be the most valuable US-listed Chinese company, with a market capitalisation of $159bn.

Perhaps more unusual still are the numbers. Temu’s sister app Pinduoduo already dominates the Chinese market. PDD has claimed that it sends out more than a third of the parcles in China, with a mere 13,000 staff — a small fraction of Amazon’s 1.5mn headcount.

At PDD everything is outsourced and little is disclosed. It owns less than $150mn of hard assets. On Wall Street, 53 out of the 56 analysts who cover it rate it a “buy”. 

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The company respectfully disagreed with a characterisation of its finances as “opaque”, said its governance and levels of disclosure were strong, and encouraged the FT to listen to its earnings calls for a better understanding of its miraculous business model.

The most recent of those attributed PDD’s success to its “high-quality development”, which as a slogan coincidentally chimes with China’s most recent Five-Year plan.

Check out the FT’s mini film on the story for more.

Job moves

• The PGA Tour has created a 13-person board of directors for its commercial operations. It includes Tiger Woods, who will act as vice chair, and PGA Tour commissioner Jay Monahan, who will be the unit’s chief executive. Four directors will come from SSG, the investor group backing the golf tour, including John Henry of Fenway Sports and Arthur Blank, co-founder of Home Depot.  

• Cleary Gottlieb has hired James Hu as a partner in New York to focus on M&A. He was previously at White & Case.

• Permira has appointed Kush Patel to lead a team focused on climate transition-related investment. He recently joined from Blackstone.

• Balyasny Asset Management made three significant promotions on Wednesday. Steve Brown has been named macro portfolio manager, and Wade Clark and Max Zaraisky are the new commodities portfolio managers.

• Reevemark, the communications firm, has added Adam Shapiro as partner and head of digital. He joins from FGS Global.

Smart reads

Toxic bromance The legal battle between OpenAI’s co-founders Sam Altman and Elon Musk is the latest twist in a volatile partnership that launched the artificial intelligence boom, writes The Wall Street Journal.

Hidden home crisis In places most prone to wildfires and hurricanes, state “insurers of last resort” are absorbing trillions of dollars in risk, reports Bloomberg.

LA mogul class Music industry giant Jimmy Iovine and rapper Dr Dre are hoping to shake up education in America’s underprivileged cities, reports the FT.

News round-up

ExxonMobil seeks arbitration over Guyana oil find in Chevron’s sights (FT)

Dermatology giant Galderma aims to raise $2.3bn in Swiss IPO (FT)

Private equity group Carlyle to take control of London airport (FT)

Modernising the non-dom rules is disruptive but overdue (FT Lex)

Klarna investors push for more control after IPO (Bloomberg)

New SEC climate rules are weak, but they’re progress (Bloomberg)

The UK ISA announcement: pretty much meaningless (FT Alphaville)