First Bancorp’s capital raise to ‘position bank for the future,’ analyst firm says
First Bancorp’s recently completed $525 million capital raise will enable it to be “more aggressive” in resolving its problem loans and putting itself back on the path of profitability, research, trading and investment banking analyst firm B. Riley said Monday.
“The completion of the capital raise removes a considerable amount of doubt about the company, its capital levels, and its survivability,” said B. Riley Analyst Joe Gladue. “The company still has a large backlog of non-performing assets to work through.”
“In addition, the ongoing recession in Puerto Rico means that more loans will inevitably deteriorate,” he said. Still, the new capital provides the company the means to more aggressively resolve its problem loans and put itself back on the path to profitability.”
Last Friday, First BanCorp — First Bank’s parent company — announced it had completed its previously announced capital raise of $525 million of common stock to institutional investors Thomas H. Lee Partners, L.P. and Oaktree Capital Management, L.P.
Through the transaction, First BanCorp issued 150 million shares of common stock at a purchase price of $3.50 per share. In addition, and simultaneous with the completion of the capital raise, the financial institution issued 32.9 million shares of common stock to the U.S. Department of the Treasury upon conversion of all of the Corporation’s outstanding Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series G.
In his analysis, Gladue discussed recent industry buzz about further consolidation in the island’s banking industry, including a potential transaction between First Bank and Doral Bank. It had been said that First Bank’s capital raise responded to a desire to have capital to pursue Doral. However, B. Riley does not believe that will happen.
“We believe that further consolidation of the Puerto Rico banking space may indeed be in the cards. However, we do not expect First BanCorp to make any overtures to Doral in the near-term,” he said, saying the former still has “very high non-productive asset levels.”
“Doral has high NPA levels as well, and has only been profitable for a few quarters. We doubt that the regulators would look favorably on a combination of these two banks under these conditions,” Gladue said. “We consider it more likely that a merger would be possible once both companies have established themselves more firmly in the black.
In his analysis, Gladue also noted First BanCorp’s decision to appoint former Popular Inc. executive Roberto Herencia to serve as non-executive chairman of its Board of Directors, saying he could contribute to the bank’s potential turn-around.
“The new chairman has extensive banking experience, knows the Puerto Rico market, and has considerable new institutional expertise and backing to pursue greater efficiencies and a quicker return to profitability,” Gladue said.
First BanCorp’s recent development also drew the attention of Standard & Poor’s Rating Services, which on Monday raised First Bank’s ratings three notches, to B-plus from “CCC,” pushing it closer to investment-trade territory.
The agency justified its decision in part to the U.S. Treasury’s conversion of the preferred stock, which it said would increase the financial institution’s capital ratios, the Wall Street Journal reported.