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Popular moves to pay back TARP

“As a result of our strong capital position, improved asset quality and solid financial performance, I am pleased to mention that we have filed an application to repay TARP,” Popular Chairman & CEO Richard L. Carrión said as the San Juan-based financial company announced its third-quarter earnings Wednesday. “While we are hopeful our application will be approved, we cannot speculate on the timing or the conditionality, if any, of an approval.”

Popular, the holding company for Puerto Rico’s Banco Popualr and the stateside Popular Community Bank, reported net income of $229.1 million for the third quarter ended September 30, 2013. That was up sharply from the $47.1 million that Puerto Rico’s biggest bank netted during the same three-month period last year but down from the $327.5 million it took in during the second quarter of this year.

“We continue to generate strong revenues from our core businesses with a net interest margin and capital levels above peer averages,” Carrión said. “Credit metrics continue to improve, reaching new lows despite the sluggish environment on the island.

After the 2008 financial crisis, Congress authorized $700 billion for the TARP bailout of financial companies and automakers. About $413 billion was lent. Treasury put cash into banks in exchange for equity stakes.

As of October, Popular remains Treasury’s biggest remaining bank investment among the more than 100 small and midsize banks that have yet to pay back the bailout money.

San Juan-based First BanCorp. the holding company for FirstBank, received $400 million. Treasury started its exit from that bank in August.

Weighing against the money still owed are billions that Treasury made from the bailouts. Bailed-out companies had to pay interest on the loans.

Popular, for example, has made consecutive quarterly interest payments of $11.7 million since its first payment in February 2009.

Popular’s petition to pay back the TARP funds comes as its profit surged to $228.2 million, or $2.22 a share, in the third quarter, from $46.3 million, or 45 cents a share, a year earlier.

The bank’s bottom line has been boosted significantly in recent months by the initial public offering of Evertec in June and Popular’s secondary offering of shares it owns in the Puerto Rico-based payments processing company in September.

CARIBBEAN BUSINESS online noted in its reporting on the transactions that both moved Popular closer to a TARP exit.

“As our ongoing dialogue with our regulator is confidential, we are also not in a position to expand on the details of our application or the specific funding plan for our repayment at this time,” Carrión said in an earnings conference call. “We are, nevertheless, confident that we are closer to a resolution of our TARP participation in a manner that will be positive for our shareholders.”

Carrión and other Popular executives sought to reassure investors amid a string of negative reports on Puerto Rico’s economy and public finances in leading stateside business news outlets including The Wall Street Journal, Barron’s, Bloomberg and Forbes.

“As you’ll surely notice, the local economy has received more than its fair share of press in the last few weeks. Yet despite the volatile environment, today, we are more confident in the island’s fiscal outlook than we were six months ago, given recent government actions,” Carrión said.

The Popular chief noted that recent actions by the government, including pension reform and deficit reduction, were necessary to address the island’s difficult fiscal situation. As a sign of progress on these initiatives, last week, the government released first quarter fiscal 2014 revenue numbers, which were better than the prior year and above the government’s forecast as well, he said.

“We recognize that in the short term, measures to improve the government’s fiscal health may decelerate the pace of Puerto Rico’s economic improvement, though we continue to believe they are positive reforms for the long-term strength of the economy. While we have operated in a weak economy for most of the past 7 years, the strong revenues generated by our Puerto Rico banks have produced positive earnings in each of those years,” Carrión said.

“We are being particularly attentive to our portfolios, and so far, we see no indications or signs that would lead us to anticipate a material change in the stability of our credit metrics in the coming quarters. While sustained economic weakness is not an ideal business condition, it would not represent an environment that is particularly foreign to us. We’re confident that our significant liquidity, excess capital levels and strong internal capital generation will be key to our future performance,” he added.

Popular’s Puerto Rico government exposure ended the quarter at $1.4 billion, of which $1.2 billion is outstanding, and this includes $359 million of indirect exposure to the government in mortgage-backed securities, residential mortgage loans and industrial development loans payable by private parties.

“We know that our government exposure does not represent a random sampling of Puerto Rican municipalities or government entities, but rather a deliberate and carefully underwritten book of business, particularly with our senior interest in the borrowing entities cash flows, identifiable revenue as sources of payment and specific collateral,” Carrión said. “Given the cash flow and collateral positions of our exposure, and based on current yields, we believe the risk-reward of these positions is in our favor, and we will continue to selectively participate in funding the Puerto Rican government’s capital needs.”


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