San Juan-based Popular (Nasdaq: BPOP) has agreed to buy the servicing rights to a US$5.1bn mortgage loan portfolio in Puerto Rico from R&G Mortgage, a unit of R&G Financial, for US$34mn.
In a press release, Popular - parent of the island's largest bank - said the deal will immediately add to earnings and will boost its servicing portfolio to some US$20bn.
The deal will add 65,000 accounts to Popular's 137,000-strong mortgage servicing portfolio, president of Banco Popular of Puerto Rico David Chafey told BNamericas.
"This is a scale business and you can add volume and profitability if you have the right platform," he said, adding the new customer base improves Popular's chances of cross-selling products.
"With everything that's going on in the industry, acquisitions have to become accretive immediately," according to Chafey, who said Popular agreed to the purchase as the calculated return on investment would be "healthy," or above 15%.
The transaction is expected to close in the fourth quarter. Loan servicers collect loan payments and manage escrow accounts, taking fees for the service.
In a note sent to clients, B Riley said it believes the deal could provide US$20.4mn in incremental servicing income for Popular over the next year and boost quarterly earnings per share by US$0.01.
The Puerto Rican company has been taking a series of measures to boost liquidity levels as it faces the repayment of US$880mn in medium-term notes coming due in 2Q09.
Earlier this week, Popular issued US$250mn of floating rate notes due 2011 in a private offering to institutional investors at a rate of Libor plus 3.25% (currently 6.07% in total).
B Riley said Popular had already gathered most of the funds to replace the medium-term notes coming due over the next few months through a preferred stock offering completed in May and the sale of US subprime assets to Goldman Sachs (NYSE: GS) announced on August 29.
Popular had a shortfall of roughly US$100mn that the new issuance resolves, B Riley said.
Popular has said it keeps pursuing additional ways to improve the profitability of the remaining mainland operations, which could include the sale of its Banco Popular North America (BPNA) unit.
Popular reported total assets of US$41.7bn at June 30.
Ailing R&G announced in December 2007 it had hired investment bankers and further revealed in April this year the investment bankers had been tasked with exploring strategic options.
Popular's shares jumped 31% to US$10.5 on Thursday.
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