In a letter sent to Doral Bank earlier this week, the Federal Deposit Insurance Corp. advised the financially crippled bank to “accept an offer to combine with another insured depositary institution,” or improve its capital levels to once again be considered as “adequately capitalized.”
The regulator told Doral to submit — within 30 days from the date of the letter dated Jan. 26 — an “acceptable revised written capital restoration plan that complies with the applicable statutory and regulatory criteria.”
This is the third letter the FDIC has sent Doral with concerns over the bank’s “troubled condition,” as the regulator put it.
The cornerstone of Doral’s capital restoration plan, and one the bank believes is the best possible outcome for all constituencies, is the obligation of the Puerto Rico government to pay a $229 million tax credit it claims it is owed through an agreement dated March 26, 2012 between Doral and the Treasury Department.
“The bank believes the inclusion of the payment obligations from the Puerto Rico government is more than appropriate as the bank has a court order validating the obligation of Puerto Rico under the ‘Closing Agreement’,” Doral said in a written statement, referring to the matter that is still going through the courts.
“The Puerto Rico government has purposefully chosen to ignore the court’s ruling [of paying] — let alone sit down at the negotiating table with Doral Bank to seek a mutually beneficial resolution that is fair and respects [more than] 1,000 employees of Doral, a bank that has been instrumental in supporting economic opportunity and access to affordable housing in Puerto Rico for [more than] 40 years,” Doral said in the statement.
Industry sources have told this media outlet that Banco Popular de Puerto Rico is in the running to pick up Doral’s assets, through an FDIC-assisted transaction.
Borrowing terms scaled back
Adding to Doral’s current problems was a notification the Federal Home Loan Bank of New York sent on Jan. 23, modifying the bank’s borrowing terms under its credit facility from 30 days to overnight. Furthermore, the regulator also said the bank is eligible to borrow from its available credit line on an overnight basis in a business as usual environment.
The FHLBNY also notified Doral that “as a safe and sound practice” and to comply with its regulatory guidelines, “the FHLBNY could not extend credit to a capital-deficient member that has positive tangible capital if it receives written notice from the appropriate federal banking agency,” in the case of the bank, the FDIC.
Doral’s use of the FHLB’s advances has been prohibited, the FHLBNY said. The stateside regulator will check the bank’s status with the FDIC on or around Feb. 22.