Doral Bank has reached a deal with the Treasury Department regarding $200 million in overpaid taxes that the bank will now write off in its books as a prepaid expense. As a result, the bank will likely report dramatically improved capital ratios in its next quarterly report, investment banking research firm B. Riley said in an analysis released Monday.
Doral paid the government more than it should have in taxes from 2000 to 2004 as a result of questionable accounting methods applied to its mortgage loans that overstated its profits and spurred an unprecedented probe by the U.S. Securities and Exchange commission in 2005.
“When Doral restated results several years ago, the government was not in a position to repay the money it had overpaid, so an agreement was reached to classify the overpayments as a deferred tax asset that would shield Doral from future taxes,” said Joe Gladue, chief financial analyst for B. Riley. “The new agreement reclassifies the overpayments as a prepaid tax.”
While analysts expected the bank to return the $200 million to its balance sheets in the next year or two, Gladue said the agreement will mean that Doral will likely factor in the amount in its second quarter report instead.
“Any impact to net income will likely be discounted by investors, since it is not core operating earnings and is more of an accounting gain. However, the impact on tangible book value is real,” he said.
In related news, Bloomberg reported that Citigroup Inc. had sold a $416.2 million collateralized loan obligation for Doral Leveraged Asset Management, which is part of the San Juan-based financial institution.
By definition, CLOs are collateralized debt obligation that “pool high-yield, high-risk loans and slice them into securities of varying risk and return,” Bloomberg said.
The value of Doral’s stock soared by 21 percent Monday, closing at $1.86 per share.