First BanCorp.: The Case Of The Non-Sale Sale

Yesterday, the SEC announced that it settled fraud charges with First BanCorp. of Puerto Rico. By engaging in flawed securitizations with “non-conforming” mortgages between 2000 until 2005, the company “concealed the true nature” of $4 billion of the debt.

The settlement is the result of investigations stretching back almost two years, involving a group of neighboring financial companies.

“Concealing the true nature” extended to aiding and abetting Doral Financial in making the mortgage loans purchased by First BanCorp. look like a genuine sale. Doral had improperly recognized income on the transactions - improperly, because Doral’s senior managers had agreed orally and in e-mails to extend a recourse provision beyond what was in the written agreements. That recourse provision nixed Doral from recognizing the sale on the loans - but First BanCorp. went along for the ride, locking in more than $100 million in net interest income for its troubles.

First BanCorp. will pay a penalty of $8.5 million, neither admitting or denying wrongdoing, as the cliche goes. The transactions have been unwound; and last month, Doral’s shareholders approved a buyout at less than a buck a share. The timing of the settlement is instructive, perhaps: it’s a reminder that the “sale” of loans is an transaction area filled with accounting frailties. The settlement with the SEC comes at time when the SEC is trying to accommodate sale-type accounting. Rather ironic.

Comments

[Japippy@Aol...:]

That would have been an interesting article except that it just happens to be 14 months old.
I'm not sure, but for some people who have not been familiar with FBP for a long time, could be swayed in the wrong direction on this otherwise healthy and profitable banking corporation. The whole article sounded extremely familiar to me so I looked up at the date which appears to be August, '07.

Shouldn't this article have a notice of some sort that this is DATED information and does not pertain to TODAY's market.

I find it VERY STRANGE that on a day when the market has been stretching for 600 pts to the good and the majority of stocks in this session are either up considerably or if they are down, it is very minuscule and then all of a sudden FBP is down considerably?

Can you explain why that would be if it is for other than this story appearing at a bad time?

Thank you.

Jim

2008 Oct 13 03:08 PM