Popular Inc. on Tuesday announced a broad restructuring for its mainland businesses that would include discontinuing most of its mainland subprime lending and putting more focus on developing E-Loan into a full-scale online bank.
Popular Financial Holdings Inc. of Marlton, N.J., the San Juan, Puerto Rico, banking company’s chiefly subprime consumer finance arm, has reported losses for several quarters, prompting analysts to suggest that Popular sell the unit or shut it down.
Popular said Tuesday that when it discontinues the New Jersey outfit this quarter, 625 of the unit’s employees will lose their jobs. That would be 26.6% of the unit’s work force and 14% of Popular’s U.S. work force.
The $46.9 billion-asset Popular said it would take a $40.5 million charge in last year’s fourth quarter and this year’s first half to restructure all its mainland businesses.
“It was a difficult, but necessary decision,” Richard L. Carrion, its chairman and chief executive, said in an interview Tuesday. Breaking the news to the New Jersey staff “was a tough one. But we needed to move forward.”
Mr. Carrion said Popular will continue to originate consumer loans through its 140 consumer finance retail branches in 36 states under the Equity One brand — only a fraction of which are nonprime — and through E-Loan.
Popular said expansion of the prime lender E-Loan, which it bought in 2005 and has operated as part of Popular Financial, would continue.
E-Loan, of Pleasanton, Calif., added deposit products in September and announced it planned to add an array of banking products, including credit cards. Mr. Carrion said Tuesday that Popular now plans to make E-Loan more than just a supplementary banking channel for people with bank accounts at other banks and to market it as an institution that “can replace your transaction account.”
Eventually E-Loan is to become a parallel bank to Banco Popular. “Banco Popular has a community-oriented strategy, built around its branches and some of the niche products we have developed,” Mr. Carrion said. E-Loan, on the other hand, is designed to have a broad, national appeal and a different client base, he said. He would not disclose growth and performance goals for E-Loan just yet.
Popular also said Tuesday that it plans to shutter its wholesale nonprime mortgage business and its support operations. It said the businesses it plans to retain — such as E-Loan, commercial lending, and mortgages held for sale — would be folded into Banco Popular North America, its Chicago banking subsidiary.
“We’ll have a much better vehicle to grow” on the mainland after the restructuring, Mr. Carrion said.
Equity One will remain independent for now and will be managed by Roberto R. Herencia, the president of Banco Popular North America.
Mr. Herencia, who joined Popular in 1991 and led Banco Popular North America through an improvement program between 2003 and 2006, took control over all mainland operations Tuesday. Cameron E. William, the president of Popular Financial, retired but will help the company with the transition, Popular said.
The changes would allow Popular to cut its expense base by $39 million this year.
“We have nothing against that business,” Mr. Carrion said Tuesday about subprime lending. “We just can’t make money right now,” because Popular Finance is financed not through bank deposits but wholesale funds.
Popular Financial lost $19.2 million in the third quarter after posting a $4.4 million loss in the year-earlier period. Last year Popular trimmed staff and closed offices, but those moves were not enough to turn Popular Financial around.
“At the end of the day, the margins are just not there, and have not been there for a long time,” Mr. Carrion said. The nonprime consumer business could pick up if the yield curve improves, “but we just can’t wait around that long,” he said.
E-Loan’s performance was “one bright spot of what I have previously described as a lousy year,” the CEO said. “We were very pleased with the reception that the deposit product had in the latter part of 2006.”
