Oriental Financial Group Inc. has entered into a definitive agreement to buy Banco Bilbao Vizcaya Argentaria, S.A.’s Puerto Rico operations for $500 million in cash, the companies announced this morning.
The transaction, which is subject to customary regulatory approvals, is expected to close before the end of the year.
In connection with the acquisition, Oriental announced that it has raised, in a private placement with institutional investors, $84 million of 8.75 percent non-cumulative convertible perpetual preferred stock, with a conversion price of $11.77, as a first step in raising an estimated $150 million in Tier 1 capital.
Oriental intends to use its own excess capital to fund the balance of the purchase price.
“We are very pleased to announce this transaction, which combines two of the healthiest banks on the Island to create a market leading bank that is strongly capitalized, locally controlled and totally focused on serving the needs of Puerto Rico businesses and consumers,” OFG President José Rafael Fernández said.
“At the same time, by acquiring BBVA Puerto Rico, we will achieve our long time goal of transforming Oriental into a bank with a bigger branch network, a larger and more diversified loan portfolio, greater core deposit funding, expanded customer base, and a smaller investment securities portfolio,” he said.
This transaction had been in the works for more than a year.
Once the deal closes, Oriental will be the second largest bank in Puerto Rico in terms of branches and core deposit funding, and the third largest in terms of assets. The resulting loan portfolio will be approximately a third each in commercial loans, residential mortgages, and consumer loans and leases, while the resulting securities portfolio will represent less than 40 percent of total earning assets.
As of March 31, 2012, BBVA PR had approximately $5.2 billion in assets, $3.7 billion in loans, $3.3 billion in deposits, 36 branches, and approximately 950 employees, which would add to Oriental’s $6.5 billion in assets, $1.7 billion in loans, $2.3 billion in deposits, 28 branches and approximately 720 employees, also as of March 31, 2012.BBVA Puerto Rico will become part of Oriental by year’s end. (Credit: © Mauricio Pascual)
BBVA PR has strong franchises in commercial and corporate banking, auto lending, retail banking, residential mortgage lending, insurance and wealth management.
The loan portfolio being acquired positively reflects BBVA PR having aggressively addressed problem assets. Non-performing loans have significantly declined and stabilized, non-performing asset formation also has declined significantly, and BBVA PR exhibits higher loan yields versus peers.
As a result of additional credit marks that will be taken as part of the closing, Oriental anticipates having the highest levels of asset quality in the Puerto Rico market.
“BBVA PR has a strong franchise that is highly complementary to Oriental’s. It also has an experienced, highly capable management team and staff that will fit perfectly with Oriental’s service and advisory oriented culture,” Fernández said.
“For Puerto Rico, we believe this transaction further increases the strength of the local banking industry,” he noted. “It is well timed, as the Puerto Rico economy has stabilized and the fiscal situation has continued to improve.”
Oriental’s most recent acquisition was in 2010 when it successfully purchased and integrated Eurobank’s assets and liabilities in Puerto Rico from the Federal Deposit Insurance Corporation.