San Juan-based Popular (Nasdaq: BPOP) may seek a US$300mn-900mn capital injection through the US Treasury's recently announced troubled asset-relief program (TARP) to increase its capital position, CFO Jorge Junquera told BNamericas.
While Popular remains well capitalized, according to Junquera, its tier one risk-based capital ratio worsened to 9.08% as of September 30 from 10.5% as of June 30 this year.
Over the last 18 months, Popular has taken a series of measures to clean up its balance sheets from US subprime assets. Most of them were held by its Popular Financial Holdings (PFH) unit, which two months ago it sold to various Goldman Sachs (NYSE: GS) affiliates.
The transactions and the losses that came with them have impacted Popular's capital position, which is now below historic levels, Junquera said.
"The opportunity of obtaining capital from the US Treasury at a very favorable price provides an attractive opportunity to provide Popular with an additional safety cushion," he said.
Junquera said liquidity issues at the holding company level have been fully taken care of through the sale of PFH and a US$350mn senior debt issued in Puerto Rico.
"That give us enough cash at the holding company level to pay all our debt until 2010," he said, adding the bank could even look at issuing up to US$1bn of debt guaranteed by the FDIC.
FDIC will be able to provide a 100% guarantee for newly-issued senior unsecured debt and non-interest bearing transaction deposit accounts at FDIC insured institutions.
US RESTRUCTURING
Popular booked a US$669mn loss in this year's third quarter compared to a US$36mn profit in the same quarter last year on rising loss loan provisions and losses resulting from the discontinued PFH operations.
"PFH was losing money and was not adding anything so we decided to sell the assets to improve future profitability and to provide liquidity at the holding company level," Junquera said.
The executive said the PFH effect was fully accounted for in 3Q08, and the announced restructuring of its US operations may amount to a US$20mn charge to be booked in 4Q08.
"The restructuring plan in the US must be finished by June 2009. We aim to move as fast and in an orderly manner as possible," he said, but added low current prices for banking assets may be a hurdle for Popular's plans.
Popular has already identified 40 US branches that will either be consolidated, sold or shut down.
"We need to downsize our operations to become profitable in the US. Right now everything is on the table," Junquera said, adding the bank might even pull out of some of the regions it still operates in.
Popular operates through 139 branches in the US with over US$12bn in assets and US$1.4bn in equity.
The bank operates in New York, Illinois, California, New Jersey, Florida and one commercial-only branch in Texas.
Banco Popular North America (BPNA) reported a US$139mn loss in 3Q08 compared to a US$1.1mn loss in the same quarter of 2007. Of those losses, US$51.7mn pertained to BPNA and US$87.4mn to its E-LOAN subsidiary.
E-LOAN will cease operating as a direct first mortgage lender over the next few weeks, which will result in annualized expected savings of some US$37mn.
POPULAR AT HOME
Popular's Puerto Rican unit - the system's largest bank- saw third quarter profits drop 56% to US$35.4mn on rising provisions for loan losses as it continues to feel the pressure of the island's weak economic conditions.
"Revenues will remain under pressure given the island's economy is still in recession," Junquera said, adding he believes it will take another two or three quarters before the situation stabilizes.
"We see 2009 as a very challenging year but the situation should start improving in 2010".
The Puerto Rican unit will also consolidate its consumer-finance unit Popular Finance into its retail banking operations.
Popular has more than 170 branches across Puerto Rico.
Popular reported total assets of US$40.4bn and stockholder equity of US$3bn at September 30.
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