Mon Jan 31, 2011 10:29am EST
By Sweta Singh
BAGALORE, Jan 31 (Reuters) - Popular Inc (BPOP.O), parent of Banco Popular, will shift a chunk of its bad loans to a joint venture to offload the problem assets dragging its earnings for two years.
The largest Puerto Rican lender will sell $500 million of construction and commercial real estate loans to a new joint venture, majority-owned by an unnamed partner.
"They are going to suffer a loss in the fourth quarter from this, but it takes a lot of the risk off the balance sheet and increases visibility, analyst Joe Gladue of B. Riley & Co said.
Popular, which has operations in Puerto Rico, the United States, the Caribbean and Latin America, had about $2.71 billion in non-performing assets as of Sept. 30.
About 75 percent of the loans to be sold are non-performing and are a part of a portfolio with a book value of $610 million.
Even after the sale, the company is expected to have a tough year ahead, reckons analyst Gladue. "The primary market in Puerto Rico is still suffering from recession and that's still going to be a drag on earnings going forward."
The purchase price is equal to 47 percent of Popular's unpaid principal balance as of Dec. 31, the company said.
Banco Popular will finance the venture with half the amount required for the loan purchase and the deal is expected to close in the first quarter.
The company also reclassified its U.S. and Puerto Rican loan portfolios and expects to take a related charge of about $190 million in the fourth quarter to its pre-tax earnings.
The company is due to report its fourth-quarter results on Friday, Feb 4. Analysts expect it to post a loss of 1 cent a share, according to Thomson Reuters I/B/E/S.
Shares of the company were trading down 2 percent at $3.12 in morning trade on the Nasdaq. (Reporting by Sweta Singh in Bangalore; Editing by Don Sebastian) ((.(JavaScript must be enabled to view this email address) ; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: .(JavaScript must be enabled to view this email address)))