Popular (BPOP) is using a recent windfall to bankroll an aggressive sell-off of struggling mortgages.

The $37 billion-asset company in Hato Rey, Puerto Rico, will book a $135 million after-tax writedown in the second quarter related to the planned sale of $595 million of nonperforming mortgages, according to a recent filing with the Securities and Exchange Commission.

However, it will record $171 million of gains in the same quarter from the initial public offering of Evertec; Popular owns part of the payments processor.

The offset won over analysts, several of whom described it as a "net positive." Though Popular is pricing the loans at roughly half their value, the sale would significantly clean up its stubborn problem assets and put it a step closer to repaying the money it received from the Troubled Asset Relief Program, the analysts say.

The market appeared to embrace the news. Popular's stock, trading at $30.38 late Tuesday afternoon, has risen nearly 4% since the May 9 filing.

"There has been a question about what is going to happen with the residential portfolio," says Alexander Twerdahl, an analyst with Sandler O'Neill. "This timing works out nicely for them. From a capital perspective, they could have done the deal without the gain but it would have meant a decent-sized loss."

The deal follows the sale of $568 million of nonperforming commercial and construction loans in March for $347 million, including $112 million in cash and a 24.9% stake in the workout of the assets. The buyers in that deal included Perella Weinberg Partners and other investors.

Popular executives signaled that more sales were possible during their first-quarter conference call.

"We are operating with both greater speed and efficiency in addressing [nonperforming loans]," Chief Executive Richard Carrion said on the conference call. "We continue to explore all avenues to reduce [nonperforming assets], including resolutions and sales that make economic sense."

The company ended 2012 with nonperforming assets totaling $1.78 billion, and that number fell to $1.22 billion at the end of the first quarter following the bulk sale of commercial loans in March and other improvements in credit quality.

The sale of mortgages would decrease nonperforming mortgages by 86% and drop nonperforming assets to 3.27% of total assets, excluding troubled-debt restructurings, analysts said.

However, the bulk sale of mortgages has raised some questions. Its price of 49 cents on the dollar is much lower than the80 cents that Popular has said it was getting from workouts. Todd L. Hagerman, an analyst with Sterne Agee, said in a research note there was some "sticker shock" associated with deal, despite its overall being a positive for the company.

Twerdahl says he is still waiting to talk to Popular executives to find out more about the pricing, as well as how much the company will save in expenses once it no longer has to administer these assets.

"I want to know how they came up with the price," Twerdahl says. "The loss content has been around 20%, so to price them at 50% — that is pretty aggressive pricing. They must be serious."

Popular has a nonbinding letter of intent with an unnamed buyer. Though the deal still has to be completed, the writedown of the assets is a certainty. The company said that it would take the $135 million mark-to-market hit in the second quarter, because it is recategorizing the loans as held for sale even if the deal were to collapse.

Banks rarely disclose tentative deals, but executives may have wanted the writedown to coincide with the Evertec gain.

"You typically don't move assets to held for sale unless you are certain you are going to sell them," says Jon Winick, president of Clark Street Capital, a bank advisor that works with distressed assets.

Popular may have announced the tentative agreement in hopes of drawing out other buyers, says Winick, who is not involved in the deal. "Perhaps they are putting this out there as an incentive to push others to do the deal, and maybe they can get the price up."

The deal is expected to help Popular repay the $935 million it received from the Treasury Department's Tarp investment, which the company converted from preferred stock to trust-preferred securities in 2010. The sale would facilitate the Tarp repayment by improving Popular's financial profile and providing it more cash to make the payment.

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