After suffering several years of substantial losses locally and stateside, Banco Popular has “solidified its capital base” and is “now poised to build upon its dominant position in Puerto Rico while returning its mainland operations to profitability,” investment banking firm B. Riley said in a report released Wednesday.
“Popular holds a very strong market position in Puerto Rico and we expect its dominance to be reflected in higher profitability once the economy begins to recover,” firm analyst Joe Gladue said, following his participation in Popular’s Investor Day event held on the island last week.
Among other observations, Gladue said the bank’s efforts to improve asset quality — by ridding itself of non-performing loans and paying closer attention to credit risk management — would normalize operations in coming months.
“The company estimates that ‘normalized’ earnings should be in the neighborhood of $370 million per year, after tax,” he said.
In his assessment, Gladue noted several actions the financial institution has taken to turn itself around, including its review of its loan portfolio both on and off the island. Furthermore, he said the change in its U.S. mainland strategy, where it now goes by the name of Popular Community Bank, has helped to “substantially improve” asset quality since 2009.
Popular operates 210 branches in Puerto Rico, eight in the U.S. Virgin Islands, and 97 on the U.S. mainland in New York, New Jersey, Florida and Illinois.
Meanwhile, Gladue raised a red flag concerning Popular’s outstanding $935 million debt with the U.S. government’s Troubled Asset Relief Program, which it will not likely repay until late 2012 or 2013.
“The company hopes to use cash on hand, net income and possibly issue debt to repay the funds, rather than issuing additional common equity,” Gladue said.