NEW YORK — For decades, Puerto Rican bank-holding company Popular Inc. has looked at the U.S. mainland as an engine of growth, but the mortgage and capital-markets crisis has turned that strategy into a liability.

For almost two years, Popular has been working on a turnaround, at first carefully exiting some consumer-finance businesses that were hurting, but then making bolder restructuring moves such as asset sales and downsizing staff. Meanwhile, losses continued to balloon as the capital-markets crisis worsened and the economy deteriorated.

On Wednesday, as Popular reported steep losses, Chairman and Chief Executive Richard Carrion announced the most drastic action yet: Instead of shrinking only mortgage-related assets and operations, Popular is taking aim at its core banking operation by slashing staff and branches, and even restructuring the Puerto Rico operations.

Carrion, who has been leading the company since 1990 and who spearheaded the mainland expansion into new markets and into subprime lending, conceded that the turn of events is a personal setback. "I wish I could take a few of these steps back," he said in an interview with Dow Jones Newswires on Wednesday.

But the urgency of the restructuring leaves very little time for such wishes, he said. "I prefer to do that in the middle of the night and not let it affect me during the day."

Popular reported a $679.8 million loss, mostly tied to the various restructuring measures and deteriorating credit quality in Puerto Rico and the U.S. A year earlier, it reported a $33 million profit that was already hurt by the mortgage turmoil.

Analyst Bain Slack from Keefe Bruyette & Woods Inc. said, "I would be shocked to see another quarter of losses like that."

Banco Popular North America, the company's Chicago-based bank, lost $51.7 million in the third quarter. It will close up to 40 of its 139 branches and lay off about 30% of its work force. Popular has laid off 1,104 employees in its mainland consumer-finance operations already since the restructuring started in early 2007.

E-Loan, the online mortgage lender Carrion bought in 2005 as a launching pad for a full-service online bank, lost $87.4 million and ceased all its lending operations but will continue to take deposits.

Popular's mainland consumer-finance operations, which are in the process of being dissolved, generated a $457.3 million loss related to write-downs of assets still on the balance sheet, losses on loan sales and restructuring charges.

Expanding in retail and consumer banking in major metropolitan markets was a promising way to escape the slow-growing economy of Puerto Rico, and Carrion is holding on to the bare bones of that strategy. In previous interviews, he would not rule out an exit from the mainland, but on Wednesday, he said: "We thought about variations on that theme, but even in difficult times ... you don't want to cut off sources of future growth."

"We are addressing tactical issues here" rather than a strategic shift away from the mainland, Carrion said. He would not predict when Banco Popular North America might return to profitability.

Popular expanded from Puerto Rico to New York in the 1960s, but only in recent years added Chicago, Los Angeles, Houston and Miami. Those markets have a sizable Latino population, and Popular planned to expand from that audience into a mainstream community bank and small-business lending.

It sold its retail-banking operation in Texas earlier this year. And it tried to sell its branch network in California, but failed to get a deal, according to a source familiar with the matter.

Carrion, a charismatic but softspoken leader, often thinks several steps ahead of the current state of his bank's operations, particularly when it comes to technology. He has little interest in the particulars of short-term earnings, but can talk about how Chris Anderson's ideas from his book "The Long Tail" might apply to the future of banking.

Carrion is a member of the International Olympic Committee, and the chairman of the IOC's finance commission. His negotiation skills helped the IOC get record fees for the Games' television rights.

Still, whenever Popular believed it was done restructuring, the capital-markets crisis took a turn for the worse, and Carrion was forced to go back to the drawing board to come up with more measures to heal the short-term ills of the bank.

On Wednesday, he was reluctant to say whether Popular is done restructuring.

Keefe Bruyette's Slack said, "It's not all sunshine and rainbows from here. They have some hard work to do."

"It is difficult to establish what the earnings power of the company is" going forward, now that operations have shrunk, Slack said. "They need to raise capital."

Popular cut its dividend earlier this year to preserve $90 million in capital. It raised $400 million in preferred stock in May, and another $350 million in three-year bonds in late September.

Still, Slack said Popular might participate in the government's plan to provide capital to banks in exchange for preferred stock and warrants. Popular might raise as much as $950 million.

Carrion said Popular will likely participate, but has not decided yet the size of the investment it will seek.

Popular's Puerto Rican home market has been in recession for more than two years, and its economy typically grows considerably slower than the mainland U.S.'s even in the best of times. Average household income is low. Still, Popular is Puerto Rico's largest bank by assets and deposits, and it continued to expand recently with the purchase of Citigroup Inc.'s (C) Puerto Rican banking and brokerage operations.

Nevertheless, for the first time since this downturn, Popular started to restructure its Puerto Rican operations, too, announcing that it would fold its consumer-finance operations into its bank. Job cuts on the island will be handled through attrition, Popular said.

Earnings at the Puerto Rican bank unit, Banco Popular Puerto Rico, fell 56.1% in the third quarter, to $35.4 million because of rising costs of souring loans.

Shares of Popular fell 8.5%, to $6.02, in late trading; the stock is down less than 12% so far this year.

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