Doral Financial Corp.’s stock plunged nearly 25 percent Wednesday after disclosing it had received a warning by Federal Deposit Insurance Corp. that it falls within its “significantly undercapitalized” category.
In a filing before the Securities and Exchange Commission, Doral disclosed it had received a letter from the FDIC on Sept. 26, in which the regulator notified the bank’s Board of its grim status. The letter follows a first the FDIC sent the bank in June, in which it said Doral fell within the “undercapitalized” category.
Like the first missive, the second letter stated that Doral Bank must increase its capital enough to comply with the minimums required by a Consent Order the FDIC previously issued, or “submit a contingency plan for the sale, merger or liquidation of Doral Bank by July 7, 2014.”
The most recent letter informs the Board that to date, the FDIC has not received the capital restoration plan or the contingency plan, and that both plans must be “submitted immediately.”
In response, Doral said “given that transactions that form the basis for these plans have only recently been completed or are still underway, information for the plans is still being developed and finalized.”
Doral said continues to keep the FDIC apprised of the development of its written capital restoration and contingency plans.
“Once Doral Bank has consummated the last of the transactions that are underway, and which are subject to compliance with regulatory requirements, [it] intends to embody the information already provided to the FDIC in a formal written capital restoration plan and a contingency plan reflecting the then-operating size and business activities of Doral Bank and to submit those written plans to the FDIC to satisfy FDIC requirements.”
Doral Bank maintains it has readily available liquidity sources of approximately $1 billion, which “is adequate liquidity to continue to operate its business and serve its clients both in the Puerto Rico and U.S. market.”
Meanwhile, in the filing, Doral also informed the SEC that it had amended its previously disclosed deal to sell $17.5 million in commercial real estate loans to Abbey Finance Holdings PR, LLC to include additional assets consisting of approximately $24.1 million of residential mortgage loans and residential real estate owned properties.
Abbey Finance Holdings agreed to pay $16.7 million in cash, consisting of approximately $13.2 million for the residential assets and $3.5 million for the commercial assets. Doral Bank, a wholly owned subsidiary of Abbey Finance Holdings, will continue to service the assets for an interim period, the bank said.
Despite the sale, Doral will continue to be undercapitalized, it said, estimating that the total amount of losses expected in connection with the sale will be between $20 million and $25 million, before income taxes.
Wednesday’s developments are the latest in a string of events Doral has been navigating through in recent months as it addresses its bottom line issues. The bank is also tangled up in a battle with the Treasury Department over a tax refund of $229.8 million it claims the government agency granted it in 2012, but which Treasury nullified in April.
The judge presiding the case reportedly said Wednesday a decision on the trial that concluded last week will not be made until at least Oct. 8.