UPDATE 3-Puerto Rico's Popular sees operating profit in 2011

Fri Feb 4, 2011 12:25pm EST

* Sees loan loss reserve release in 2011

* Says moved past peak of credit issue

* Q4 shr loss $0.22 vs est. loss $0.03

* Bad loan provisions up 64 pct from Q3

* Shares reverse early losses (Rewrites; adds conference call details, analyst comments, updates share movement)

By Jochelle Mendonca

BANGALORE, Feb 4 (Reuters) - Popular Inc (BPOP.O), parent of Banco Popular, posted a wider-than-expected quarterly loss, hurt by charges taken to clean up its balance sheet, but said it expected to achieve operating profitability in 2011.

Shares of the largest bank in Puerto Rico by assets were down 6 percent before the bell but reversed their losses and were trading up a percent at $3.33 in afternoon trade on Nasdaq.

Popular, which is selling $500 million in troubled loans and classifying $1 billion as loans held-for-sale to clean up its balance sheet, said its moves had set the stage for a profitable year.

"I think they can reach profitability in the second quarter. It is possible that they could pull that into the first quarter," analyst Joe Gladue of B. Riley & Co told Reuters.

On a post-earnings conference call, Chief Financial Officer Jorge Junquera said he expected the bank to release some of its loan loss reserves as it is past the peak of its credit issues.

"I think we will see it (reserve release) blend into the numbers in 2011 and 2012. I think they will be conservative with that," Sterne Agee analyst Adam Barkstrom said.

On Monday, Popular said it would sell $500 million of impaired construction and commercial real estate loans to reduce its non-performing assets and would take charges from the sale in the fourth quarter. [ID:nSGE70U0B2]

For the October-December quarter losses applicable to common shareholders were $227.5 million, or 22 cents a share, compared with a loss of $213.2 million, or 33 cents a share, a year ago.

Analysts on average had expected a loss of 3 cents a share, excluding items, according to Thomson Reuters I/B/E/S.

Popular took a charge of about $186 million as it moved $1 billion in loans to the held-for-sale category.

Provisions for credit losses rose 65 percent to $354.4 million from the third quarter due to the reclassification of the loans.

"The quarter was messy but it saw a big scrubbing of the decks to improve performance in 2011," analyst Barkstrom said. (Reporting by Jochelle Mendonca in Bangalore; Editing by Prem Udayabhanu, Jarshad Kakkrakandy)

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