* Scotiabank owns 10 pct of Firstbank
* R&G deal gives Scotiabank additional exposure
* Scotiabank keen on aggressive foreign expansion
* Firstbank may find it difficult to raise capital
* Deal will make Scotiabank No. 2 lender in Puerto Rico
By Anurag Kotoky
BANGALORE, May 4 As U.S. banking regulators
move to clean up the financial mess in Puerto Rico and put the
island's ailing economy back on track, another major local
lender, First BanCorp (FBP.N), could emerge as a blip on the
In such a case, Bank of Nova Scotia (BNS.TO), Canada's
third-biggest and the most international lender, could turn out
to be the perfect suitor as it already owns a 10 percent stake
in Firstbank and is familiar with the bank's operations.
A buyout of Firstbank would position Scotiabank as a
leading force in the island's banking industry, second only to
Popular Inc (BPOP.O), said Cantor Fitzgerald analyst Michael
Diana in a note titled "Time to Sell to Bank of Nova Scotia?
Firstbank, which lost $275 million in 2009 and a further
$107 million in the first quarter of this year, is exploring
the possibility of raising about $500 million.
Macquarie Capital analyst Sumit Malhotra said if the
financial health of Firstbank worsens, Scotiabank would have
the opportunity to participate in additional consolidation.
"Certain synergies within the Puerto Rico franchises as
well as the acquisition of the Virgin Islands franchise would
make a deal attractive to Nova Scotia at the right price,"
analyst Amanda Larsen of Raymond James told Reuters.
If First Bancorp fails to raise common equity, Scotiabank
could be able to buy out the company at a "bargain price,"
U.S. regulators seized three Puerto Rican banks on Friday
and sold their deposits to other banks, costing the Federal
Deposit Insurance Corp (FDIC) insurance fund $5.3 billion --
one of the largest hits from the banking crisis.
The FDIC sold $5.6 billion in deposits of R&G Financial
Corp RGFC.PK to Scotiabank de Puerto Rico, a unit of
Scotiabank, under a loss-sharing agreement.
"Right now our focus is on the integration of the
operations and assets that we have purchased of R&G Premier
Bank," Scotiabank spokeswoman Ann DeRabbie said.
"If any other opportunities present themselves we will
review them at that time."
Firstbank did not reply to an email seeking comment.
Scotiabank has an aggressive international strategy, which
also augurs well for another foreign deal for the banking
"The (R&G) announcement will increase our market share to
about 9 percent and is consistent with Scotiabank's
international strategy to grow incrementally to scale in target
markets," Scotiabank's Chief Executive Rick Waugh said in a
The deal comes after Canada's second-largest bank,
Toronto-Dominion Bank (TD.TO), and No.4 Bank of Montreal
(BMO.TO) recently announced deals to buy the assets of failing
U.S. lenders, folding regional branch networks into the growing
retail franchises of the Canadian brands. [ID:nN2690352]
The latest deal also catapults Scotiabank, which already
had a century of existence in the island, to a major banking
position, and it will not be a surprise if it tries to bulk up
further with a buyout of Firstbank.
For a graphic on the deposit share of Puerto Rican banks,
click on link.reuters.com/suf62k For the bank
closure story, double click [ID:nN30211197]
FIRSTBANK'S WOES WORSEN
An accounting scandal weakened many of Puerto Rico's
biggest banks, beginning in 2005, making it difficult for the
FDIC to find local buyers for their troubled assets, people
briefed on the matter told Reuters.
But most buyers from outside Puerto Rico were reluctant to
gain exposure to an island that has been in recession since
2006 and with an unemployment rate of 16 percent.
First BanCorp has been battered by a precipitous decline in
value of residential and commercial real estate in Florida and
Puerto Rico in the wake of the financial crisis.
However, when speculation about the FDIC moving in to close
troubled lenders was growing, analysts expected that Firstbank
might use the opportunity to raise capital and participate in
That did not happen.
"They can raise money, but I think it will be difficult and
probably more expensive than it had been. There is not a
possibility of an accretive acquisition out there," analyst Joe
Gladue of B. Riley & Co said.
Macquarie Capital's Malhotra said while the current picture
for banks in Puerto Rico is not very pretty, it appears that
Scotia is taking the "long view" and it has clearly benefited
from banking sector rationalization in other international
markets in which it operates.
(Reporting by Anurag Kotoky and Sweta Singh in Bangalore, and
Andrea Hopkins in Toronto; Editing by Gopakumar Warrier)