Southeast bank Popular, Inc.’s BPOP subsidiary, Banco Popular de Puerto Rico,(“BPPR”), acquired the banking operations of its Puerto Rico-based rival, Doral Bank. Reportedly, the company took over Doral’s deposits and assets through a bidding process conducted by the Federal Deposit Insurance Corporation (“FDIC”).
As part of the transaction, Banco Popular formed an alliance with co-bidders to acquire deposits worth nearly $1 billion from 8 of Doral’s 18 branches as well as from its online deposit platform. Also, deposits worth $1.3 billion were acquired from the latter’s New York branches. Additionally, the alliance bought performing residential and commercial loan portfolio worth $848 million and $931 million, in Puerto Rico and New York, respectively.
Banco Popular North America and FirstBank Puerto Rico were some of the co-bidders which formed the alliance. Further, the acquisition marks a no-loss sharing deal with the FDIC.
Notably, Doral Bank was shut down by regulators on Friday, putting an end to years of financial difficulties, which included 8 consecutive loss-making years. Further, the bank had been involved in a multimillion dollar fraud case along with a murder investigation. The collapse, moreover, hit investors like Goldman Sachs Group Inc. GS and Marathon Asset Management, to the tune of hundreds of millions of dollars.
The acquisition is in sync with Popular’s strategy of solidifying its base in Puerto Rico and expanding footprints in the metro markets of New York.
Further, the buyout will strengthen the company’s deposit base, which dwindled 7.1% year over year in 2014. Moreover, the acquired performing loan portfolio is expected to bring some relief to the volume of non-performing loans, which formed 3.8% of the company’s total loans held in the BPPR segment portfolio as of Dec 31, 2014.
However, Popular has exhibited a volatile expense line over the years. Though management expects expenses to reduce in the upcoming quarters based on its efforts to centralize functions in Puerto Rico, we fear that acquisition-related costs may ruin such efforts.
Nevertheless, we believe the company is well-poised to capitalize on its leading position in the Puerto Rico market. Moreover, a strong capital and liquidity position favor such opportunistic acquisitions. Also, the gradual recovery of the U.S economy and stability in the Puerto Rican economy should augur well, going forward.
Popular currently carries a Zacks Rank #3 (Hold).
Some better-ranked Southeast banks include Pinnacle Financial Partners Inc. PNFP and Southern First Bancshares, Inc. SFST. Both these stocks sport a Zacks Rank #1 (Strong Buy).
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