Seeking Alpha

Doral's trouble means gains for other Puerto Rico lenders

  • Popular (BPOP +3.8%) and First Bancorp (FBP +4.5%) are posting strong gains in the wake of fellow Puerto Rico lender Doral Financial's (DRL -17.7%) escalating liquidity issues.
  • Both Popular and First Bancorp are no doubt eyeing assets they can maybe pick up on the cheap, and yesterday FBP purchased from Doral servicing rights on mortgages with about $242.1M of UPB.
  • Previously: Doral completes sale of mortgages; evaluating strategic alternatives
Comments (2)
  • CDM Capital
    , contributor
    Comments (439) | Send Message
     
    We think $FBP is worth about $9-10 just on a stabilization in Puerto Rico and $DRL going by the wayside (industry consolidation). Tangible book ~$8.00 (and growing) when you include the deferred tax assets. Once FBP pays down the small preferreds they will start paying a dividend once again which may be a catalyst in the next 12-18 months, along with the street realizing NPLs are declinning.
    3 Jun 2014, 01:28 PM Reply Like
  • TheUnknownInvestor
    , contributor
    Comments (141) | Send Message
     
    The mortgages, and servicing rights, that FBP purchased were actually collateral on a loan FBP made to Doral prior to the crisis. FBP states that they do not know if they will have to take a loss on the mortgages.

     

    FBP has run in place for six quarters now on pre-tax, pre-provision earnings. Non performing assets have not declined for 3 straight quarters. Puerto Rico stabilizing? Perhaps, but the island has massive debt and the recent financing was a bandaid. FPB continues to operate under a consent order, which will not doubt be lifted - someday. Is FBP in a position to take some Doral business, or are the other banks better positioned - I don't know.

     

    At the end of the day, FBP needs to show progress on earnings and on reducing NPAs without taking additional losses. Evidence to date is not compelling, but that may change. It is a turnaround after all. FBP has privately negotiated some exchanges of common for preferred, but they still have a fair amount outstanding.

     

    Lastly, at some point there will be securities offerings so that the US Treasury can sell their large ownership stake. If it was like the last offering, the private equity investors will sell alongside treasury.

     

    All that said, FBP is not overvalued but absent progress it may be reasonably valued. Further, it is volatile - the stock was over $8 less than a year ago when folks thought the turn was at hand.
    4 Jun 2014, 01:28 PM Reply Like
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