By : JOSÉ L. CARMONA, josec@caribbeanbusinesspr.com
Puerto Rico Senate President Thomas Rivera Schatz expressed concern over Popular Inc.’s finances Tuesday a day after a B. Riley & Co. financial analyst downgraded the local bank’s shares to “neutral.”
Analyst Joe Gladue predicted that Banco Popular’s parent company would post further losses and need to raise additional capital, citing the potential sale of its profitable EVERTEC unit.
“The Puerto Rico Senate has knowledge of the proposals that EVERTEC has presented to various government agencies, among them the Treasury Department. Therefore, we’re concerned that Banco Popular may be trying to get out of its financial crisis by selling a business whose value resides in the contracts it may or may not have with the government,” Rivera Schatz said.
In his March 22 research update, Gladue suggested that due to the expected continuing losses which have strained capital levels, Popular would have to raise capital in the not too distant future. This could mean another capital raise through a common stock issue or the sale of assets.
One possibility is selling its EVERTEC business, a financial transactions processing and technology unit, which could fetch between $400 million and $907 million, according to Gladue.
A sale in the middle-to-high-end of the range could cover most or all of Popular’s projected losses, Gladue said.
“Puerto Rico’s economic recovery must count on a strong and stable local banking industry, but the recovery of a financial institution cannot occur through the sale of a business whose value rests on proposals or services offered to the government of Puerto Rico,” Rivera Schatz said.
The Senate president questioned who would be providing the electronic transaction services to the government, which are the target of proposals submitted by EVERTEC, if Popular sells the unit.
“That’s a question that has no answer. Therefore we’re concerned about the evaluation made on any proposal that EVERTEC submits to the government,” Rivera Schatz added.
Shares of Popular Inc. fell Monday after Gladue’s downgrade. The analyst said the bank faces an “unpleasant choice” to either sell EVERTEC or issue more stock.
Popular CFO Jorge Junquera said the bank’s stock has been volatile lately, and would not attribute Monday’s drop to the B. Riley downgrade. He said the bank is “looking at all the options in these very difficult times.”