Research firm: Popular Inc. “turning corner”

Written by  //  June 24, 2011  //  Banking, Financial District  //  1 Comment

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Banco Popular's parent, Popular Inc. is working its way back to sustained profitability, research firm says.

Los Angeles-based financial research firm B Riley gave Popular Inc. a cautious pat on the back this week, saying the banking institution has “solidified its capital base, and it appears to be turning the corner on asset quality,” following several years of substantial losses.

In a report released Wednesday, B Riley’s Chief Financial Analyst Joe Gladue offered his insight on the bank’s status following investor meetings this week revealing that Popular Inc. has gotten asset quality under control, but is still struggling to achieve “sustained profitability” and earn back its cost of capital.

“The company is solidly profitable in Puerto Rico, despite the enduring recession. Management believes that in a more normal environment, profitability in Puerto Rico could reach 1.30 percent return on average assets (ROAA) and 18 percent return on average equity (ROAE). Both of these measures are well in excess of expected industry norms,” Gladue said.

In his analysis, Gladue concluded that Popular Inc. is well on its way toward taking advantage of its acquisition of approximately $9.39 billion of Westernbank’s failed assets last year, with which it will use “to make a return to sustained profitability.”

“The Federal Deposit Insurance Corp.-assisted Westernbank acquisition continues to perform better than originally anticipated,” he said.

Nevertheless, he said pressures such as a weak local economy continue to play upon Popular Inc.’s asset quality, while its problems on the U.S. mainland are waning. Banco Popular North America has pretty much completed its restructuring process, through which it scaled back operations by selling off assets. However, future expansions are still viable, under the right conditions, Gladue offered.

“Popular may eventually consider making acquisitions in the U.S. market. Such acquisitions could be as large as $5 billion in assets, but the company could also complete several smaller purchases that provide a similar level of assets,” Gladue said. “Management is determined that it will remain disciplined and focused on improving profitability in any such acquisitions, rather than just growing assets.”

If any assets are picked up, they would likely be along the U.S. eastern seaboard, B Riley said.

In his analysis, Gladue also touched upon two other issues Popular Inc. still needs to address — its debt with the U.S. government and the $500 million bad loan portfolio it unsuccessfully tried to sell earlier this year — to move its finances forward.

“The collapse of negotiations for the sale of a pool of roughly $500 million of nonperforming Puerto Rico … loans in May was unfortunate, but the parties could not agree to mutually satisfying terms. Popular will continue to attempt to sell these loans, most likely in smaller pieces,” the analyst predicted.

Meanwhile, Popular Inc. has yet to repay the U.S. Department of Treasury the $950 million it received through the Troubled Assets Relief Program in November 2008. The bank has said it is looking to repay that debt with its earnings, rather than by issuing additional common stock.

One Comment on "Research firm: Popular Inc. “turning corner”"

  1. RamonAntonio June 24, 2011 at 12:05 PM · Reply

    Popular, Inc. vs Puerto Rico: the Final Match!

    Of course Popular is turning into black! But at what cost to Puerto Rico’s local capital?

    This article is so clear and blunt that it should be the part of a class action by debt ridden guarantors who are being crushed to bankruptcy and economic extinction by Popular in courts in order for Popular to generate the “assets” it is using to turn around its finances and obtain this kind of “good” remarks by consulting firms. This is not an economic recovery by Popular but a scavenging of the remnants of PR local capital which Popular identified as the sole remaining capital available in this market in order to survive as a bank. Of course, a “little help” from the FDIC to make it possible to “buy” those “failed”assets without which help they couldn’t afford to buy because of their own fragile condition didn’t hurt.

    What would be the effect of a class action from guarantors against Popular use of their projected recapture of said guarantees in order to turn their finances before courts decides on the suits by Popular against them? Is it legal or moral to use whatever amount they figure form those projected proceeds as the basis of their so called “turnaround”? Wouldn’t a simple Cease and Desist Order, if obtained by suitors, force the recalculation of Popular finance position by forcing the removal of those values, whatever they may be, that this firm is taking into account admittedly in this news, to project Popular’s turnaround? IF obtained where and what would popular’s real position be? Would it be claiming a turn around? Or would Popular would be trying to reach a deal in order to procure a realistic number for their portfolio.

    From my point of view, this news are part of a strategy to influence the courts into taking into account that Popular is saying that in order to survive they figured the proceeds of the courts decision. SO the judge may actually be liquidating Popular if they rule aginst what Popular wants from the guarantors. So it really is Popular vs Puerto Rico.

    All in all, Popular may survive at the expense of Puerto Rico with the help of the FDIC. A bank in intensive care was made able to buy failed assets from banks in the morgue in order to be converted in the executors of the liquidation of the notes guaranteing the failed loans. The problem is that we continue to look this news as signs of economic recovery in the understanding that what is good for Popular is good for Puerto Rico. That is not true! Just ask anyone who is right now in court defending against Popular trying to get all they can from the capital base of investors who own projects that Popular bought from Westernbank and has taken no single good faith effort to help to turn around.

    By the way, who paid the appraisals that say that the value of those assets is almost nothing? Has anyone taken a look to the ratio of failed loans in real estate owned by Westernbank vs the loans owned by Popular? Are they being treated the same way? Are Popular clients having some kind of grandfather treatment in the mean time that they execute Westerbank clients? Too many questions, very few, if any, answers.

    In the end the question is: What is best: Puerto Rico sans Popular or Popular sans Puerto Rico? I think the field should be leveled. popular should be prevented to use the projected proceeds from the liquidated assets as part of their “so called recovery” until final rules are obtained for each case. Only then, the real situation will be evident, two dying interests are confronting each other in court. only through a leveled field a fair solution may be reached. Right now, the field belongs to Popular alone. And that, for all I see is very bad for Puerto Rico

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