The head of Popular Inc. said things are looking up for the troubled lender and reeling Puerto Rican economy after three of the island's biggest banks failed last week.

Popular cemented its status as the region's dominant player with a purchase of one of them, Westernbank, an acquisition that Chief Executive Richard Carrion described as the new centerpiece of his strategy for retrenching in Puerto Rico after a painful expansion into the U.S. mainland.

"This gives us exactly what we need," Carrion said in an interview. "It solidifies our competitive position. … We know this market very well."

The acquisition is good for Popular and Puerto Rico, he said, because it helps stabilize an economy that has endured a deeper and longer recession than on the mainland.

Two other failed banks — R-G Premier Bank and Eurobank — were closed last week, with R-G sold to Scotiabank and Eurobank going to Oriental Bank and Trust.

Westernbank — with $12 billion of assets — was the largest of the three. Popular paid no premium for $2.5 billion of unbrokered deposits and collected $8.5 billion in loans, 80% of which are covered by a loss-sharing agreement with the government.

Those were a huge score given the tough times banks in that region have traditionally had raising deposits and generating new loans. Analysts estimate that Popular now controls nearly half of the island's deposits and more than a third of its loans. It will also be the leader in areas like commercial real estate and small- and midsize-business lending. "This is a very good step. You have truly consolidated in one fell swoop" the banking market in Puerto Rico, Carrion said.

Joe Gladue, an analyst with B. Riley & Co. LLC, said that consolidation is good for all banks in Puerto Rico because those three troubled lenders were driving down rates on loans and deposits with aggressive pricing, pressuring everyone's margins.

Gladue said the acquisition should also help Popular return to profitability, with the potential for huge cost savings in coming quarters as it closes a number of the 46 branches it acquired. A lot of those locations overlap with the 187 Popular has on the island, he said.

Popular had a loss of $85 million last quarter, widening from $52.5 million a year earlier.

It has stayed profitable in its home region even while losing money on the U.S. mainland, Gladue said. It also has finished most of its restructuring work there, although he said it may still cut back its mainland exposure to just a "one or two" important markets. It operates in five states.

Popular has a lot of acquisition experience — it bought Citigroup Inc.'s retail operations in Puerto Rico last year — so it should not have too much trouble integrating Westernbank, Gladue said. "They know all the markets," he said.

Carrion said the region's banking market is on firmer footing now that the three banks have been absorbed. It has been effectively recapitalized because the government has agreed to absorb an estimated $5.3 billion in losses on those acquisitions.

Carrion said $6.5 billion in new capital has come into the market thanks to that agreement and capital raises at local banks. That should help the region's lenders start making new loan when demand picks up. "Hopefully we'll get a little more [loan demand] once the economy starts improving," he said. "We are still looking at a very sluggish economy for the next few quarters."

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