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January 28
NEW YORK — Popular Inc., one of the winners in the regulator-driven consolidation of the banking industry in Puerto Rico last year, on Friday reported a wider fourth-quarter loss as it set aside more funds to cover potential loan losses and took a charge related to loan sales.
Puerto Rico's largest bank by assets and deposits reported a $227 million fourth-quarter loss, compared with a $213.2 million loss a year earlier. The results included a slew of nonrecurring charges that initially upset shareholders and puzzled analysts.
Popular has been struggling for its footing after the financial meltdown, but it's getting more aggressive in cleaning house, and decided to sell more mainland U.S. subprime mortgages and island construction loans it doesn't expect will be paid back in full. Popular took a $186 million charge related to its plans to sell $1 billion of loans.
Many banks have taken such action in recent months, a sign that the benefit of getting rid of loans and the prices banks can fetch selling soured loans has begun to outweigh the short-term earnings hit from such dispositions.
Popular's other charges included a settlement of a shareholders suit and claims to repurchase bad mortgages previously sold to private investors, and for repaying debt early. All said, the bank's "core business was pretty close to break even, which was expected," said Sterne Agee & Leach analyst Adam Barkstrom.
Chairman and Chief Executive Richard Carrion promised to improve future earnings. "We'd like to tell you that there is going to be no more noise in these quarters, but we're just going to do whatever it takes" to lift the company's performance, including selling loans, he told analysts during a conference call.
Carrion said the lower tax rate in Puerto Rico could result in an approximately $75 million future charge related to the bank's deferred tax assets.
The Puerto Rican economy, which has been in a severe slump for years, shows signs of stabilization, Carrion said. He wouldn't say when he expects Popular's mainland operation to return to profitability.
However, the chairman said his team is "very committed to having a profitable year" for the company overall. "Obviously, if we get a little tailwind from the economy that would be great," but the main driver of earnings improvements will likely be a lower provision for future loan losses and cutting the bank's operating costs, he said.
Popular's fourth-quarter loan-loss provisions rose to $354.4 million from $352.8 million a year earlier and $215 million the prior quarter; the increase was mainly tied to the loan sales. The bank said losses from the loans Popular itself made, as opposed to loans originally made by Westernbank in April, stabilized. Popular bought Westernbank, a competitor that failed because it made bad construction loans, in April.
Net interest income, earnings derived from lending, jumped 32% to $354.6 million; fee income plunged 40% to $105.6 million.
Morgan Stanley analyst Ken Zerbe wrote in a research report, "Popular has made meaningful progress at addressing its credit issues." Preparing loans to be sold, "combined with the charge-off of existing troubled loans materially improves the quality of its remaining balance sheet," he wrote.
Popular hopes Westernbank customers will help it grow. But Popular on Friday had to restate its second- and third-quarter results because it expected losses from Westernbank's bad loans to be $1 billion less than originally expected, which makes the loss guarantees it received from the Federal Deposit Insurance Corp. less valuable and required an accounting adjustment for those quarters.
