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Popular CEO sees 'a lot of opportunity' from Puerto Rico bank consolidation

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Popular CEO sees 'a lot of opportunity' from Puerto Rico bank consolidation

Popular Inc. sees "a lot of opportunity" to pick up business as two major M&A deals in Puerto Rico will lead to consolidation among its competitors, CEO Ignacio Alvarez told analysts Oct. 23.

The two pending mergers, including First BanCorp.'s newly announced acquisition of Banco Santander Puerto Rico, would give Popular the chance to "go after clients" currently banking with those institutions and to hire some of their top employees, Alvarez said on the company's third-quarter earnings call.

The First BanCorp. acquisition would mean an exit for Spanish lender Banco Santander from the Puerto Rico market. A similar exit would occur from a separate deal announced in June: OFG Bancorp's pending acquisition of Scotiabank de Puerto Rico, whose parent company is based in Canada.

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The potential disruption from the mergers may lead to more clients turning to Popular, which already has the largest deposit share in Puerto Rico, Alvarez said. That may include some clients who had sought to work with banks that had an international presence, he added.

But Popular will also have to be "even better than we've been in the past" given that the mergers would give two local competitors a larger footprint, Alvarez said, adding that Popular will "have to up our game."

"We see lots of opportunities, but we're also going to be on our toes," Alvarez said.

The consolidation among Puerto Rican banks was widely expected given that banks had been looking to deploy their excess capital following stabilization in the island's economy after Hurricane Maria.

For its part, Popular's capital levels continue to be significantly above regulatory requirements. Its common equity Tier 1 ratio rose to 17.46% as of Sept. 30, up from 16.80% at the end of the second quarter.

Asked about how the company will draw down its excess capital, Popular CFO Carlos Vázquez reiterated that the bank will try to "pull all the levers available to us," preferably capitalizing on organic growth as Puerto Rico's economy gradually continues its improvement. But executives are also frequently evaluating opportunities to purchase assets, he said.

Popular is in the middle of discussions with regulators regarding capital returns, and executives hope to have more information to share for the bank's fourth-quarter earnings call in January 2020, he said.

Vázquez also provided an update on how the upcoming transition to the new current expected credit loss accounting standard, or CECL, will affect the bank. Popular would have to increase its allowance for loan and lease losses by about $360 million to $400 million, or 85% to 95%, according to the bank's preliminary analysis as of June 30. The increase is largely due to its Puerto Rico mortgage, auto and credit card loan portfolios.