Popular Inc. has agreed to buy Wells Fargo’s auto finance business in Puerto Rico.
The San Juan, P.R., company said in a press release Wednesday that it will pay $1.7 billion in cash for the auto business, which operates on the island under the brand Reliable Auto. The deal is expected to close during the second quarter.
Under the agreement, Popular will acquire approximately $1.5 billion in retail auto loans as well as $350 million in commercial loans, among other assets and liabilities.
The deal comes as Popular and other banks on the island continue to assess the financial impact from Hurricane Maria, which ripped through the Caribbean in September. Since then, questions about the potential for future loan losses have lingered, as nearly 20% of the island still lacks electricity and residents have moved, at least temporarily, to the U.S. mainland.
During a conference call in October to discuss third-quarter results, Wells said that it had built its reserves by $450 million in preparation for hurricane-related losses.
Moreover, the deal also coincides with Wells Fargo's effort to slim down its balance sheet. Earlier this month the Federal Reserve barred the San Francisco megabank from growing any larger until it addresses a host of risk management issues.
Wells, which has nearly $2 trillion in total assets, has said it plans to stay within the asset cap by scaling back on short-term trading assets and noncore commercial deposits.
Popular had just over $800 million in auto loans on its books as of Sept. 30, according to the Federal Deposit Insurance Corp. The auto loans it plans to acquire from Wells have a “similar” credit profile to its existing portfolio, the company said in the release.
In a separate investor presentation accompanying the announcement, Popular said the Wells portfolio has an average FICO score of 721 at origination. The transaction does not include auto loans without credit scores, nor does it include those with “the lowest” scores, the company said.
“Even in this period of significant uncertainty, Popular continues to believe and invest in the future of Puerto Rico,” Ignacio Alvarez, CEO of the $44.3 billion-asset company, said in the release. “We are proud to welcome Reliable’s team to Popular, a seasoned team that strongly complements our own.”