* Popular favorite buyer in FDIC-backed deals
* At least three island lenders in danger of closure
* Deal to add significant capital
* Antitrust likely to be cleared
(Recasts; adds details, updates stock activity)
By Anurag Kotoky
BANGALORE, April 5 Puerto Rican banks are
likely to see a round of consolidation soon as regulators move
to close underperforming lenders, giving Popular Inc (BPOP.O),
the biggest player, an excellent chance to bulk up.
At least three of Puerto Rico's biggest banks are under
cease and desist orders from regulators, and there is rising
speculation in the market that the Federal Deposit Insurance
Corp (FDIC) may take over operations.
In such a scenario, the FDIC will move ahead with a formal
sale process of their assets, and Popular being the dominant
and the oldest player in the island has every chance of
emerging as the winning bidder.
Popular spokesman Enrique Martel said the company is not
providing comments at this time.
One of the three troubled banks in the island, W Holding Co
Inc WHI.N had said it would not be filing its annual report
on time and that there was a possibility of auditors raising a
"going concern" doubt.
"This makes it seem more likely that W Holding's days may
be numbered and that Popular could be the beneficiary," B.
Riley & Co analyst Joe Gladue said.
The FDIC-backed deals have often been a big boost for the
acquiring bank's capital, something that would be helpful for
Popular, Gladue said.
Gladue downgraded the parent of Banco Popular last month,
saying it needs to raise capital in "not too distant future."
Option traders on Thursday exchanged about 47,000 call
contracts in Popular, 14.5 times the normal daily turnover
compared to 1,059 puts, according to option analytics firm
"The action comes as the FDIC attempts to find ways to
bring more capital to some of Puerto Rico's struggling
financial institutions. The bullish trading might reflect the
view that these efforts will help the industry, including it's
largest player -- Popular," WhatsTrading.com option strategist
Frederic Ruffy said.
The other Puerto Rican banks under regulatory restrictions
are EuroBancshares Inc EUBK.O and R&G Financial Corp
W Holding, EuroBancshares and R&G Financial could not be
immediately reached for comments.
The island of Puerto Rico, a manufacturing hub for
petrochemical, pharmaceutical and technology companies, as well
as a tourism destination, faced the financial meltdown much
before the rest of the world went into recession.
Although some companies like Popular and rival Doral
Financial Corp DRL.N somewhat managed to put the worst behind
them, many others are still fighting for survival.
While there are antitrust hurdles that could prevent
Popular from taking part in FDIC-backed deals, the company
should manage to get over it considering there are fewer buyers
and smaller targets, Cantor Fitzgerald analyst Michael Diana
The analyst wrote in a research note last month that if
FDIC decides to adopt a "go-with-strength" strategy,
Canada-based Bank of Nova Scotia (BNS.TO) and Popular will be
favorite buyers of failed banks.
However, if regulators decide to help the weakest to
bolster capital levels through an assisted deal, the favorite
would be First BanCorp (FBP.N), the analyst had said.
FDIC-assisted deals have turned very lucrative since last
year with rising bank failures. These deals often add to
earnings immediately and include a loss-sharing agreement with
Popular has operations in Puerto Rico, the United States,
the Caribbean, and Latin America, according to its website. It
operates 177 branches in Puerto Rico alone.
The company posted its sixth straight quarterly loss in
January, and said it expects adverse economic conditions to
continue to hurt its earnings.
Popular shares, which have more than tripled since hitting
a 52-week low of $1 last July, were up about 3 percent at $3.05
Monday afternoon on Nasdaq.
More than 19 million shares changed hands by 15:45 ET,
compared with a 50-day moving average volume of just 8.5
(Reporting by Anurag Kotoky in Bangalore; additional reporting
by Doris Frankel in Chicago; Editing by Ratul Ray Chaudhuri)