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Puerto Rico Banks See Room to Grow at Home
BY MATTHIAS RIEKER
December 2, 2002
SAN JUAN -- Puerto Rican banking companies, which have always had to compete with players from elsewhere for Puerto Rican customers, say they have managed to increase market share in recent years.
And executives at two small homegrown companies, First BanCorp and W Holding Inc., say they can grow without following Popular Inc. and others to the mainland market now.
To be sure, Citigroup Inc. still has a sizable credit card portfolio and 16 branches in Puerto Rico, though it sold most of its auto financing business here in 2001 to Spain's Banco Bilbao Vizcaya.
Another Spanish company, Banco Santander, also has a presence, and several U.S. companies, including Wells Fargo & Co. of San Francisco, have sizeable consumer operations here.
But the exit of such players as J.P. Morgan Chase & Co. and Royal Bank of Canada has created opportunities for local companies, as well as increasing the pool of experienced professionals available for hire.
Royal Bank left in 1992. Morgan Chase, which divested its retail operations in 1990 and sold its commercial operations to Bilbao Vizcaya in 1999, has no plans to return, a spokeswoman said.
Puerto Rican banking companies increased their market share to 21.1% by mid-2001, from 7.4% in 1995, according to the New York investment banking boutique Keefe, Bruyette & Woods Inc.
One potential growth business is mortgage origination. Puerto Rico has a high rate of homeownership -- 80% -- but less than half the island's residents have a banking relationship. Many get mortgages through consumer finance companies like Island Finance, which Wells owns.
W Holding, of Mayaguez, says it is drawing Puerto Ricans away from such loan shops. The $8 billion-asset company, which established a consumer lending unit in July, has won 11,000 customers from other lenders, said chairman, president, and chief executive Frank C. Stipes.
Puerto Rico's housing shortage should also help keep its mortgage market hot when the one on the mainland cools, said Mr. Stipes in a recent interview with American Banker.
W Holding plans to use its mortgage business to develop other banking relationships, cross-selling investment and retirement products, credit cards, and other consumer loans to generate fees, Mr. Stipes said. The potential revenues from cross-selling are "humongous," he said.
First BanCorp, based in Santurce, has been building both its consumer and its commercial banking lending portfolio, said Angel Alvarez-Perez, its chairman, president, and CEO.
He said his company has managed to pick up a lot of talent as foreign banks have left Puerto Rico.
First BanCorp started out as a consumer finance company but has diversified to offset the inherent risks in that business, said Anna Astor, its chief financial officer. It still has a large auto loan portfolio, but Ms. Astor said she remains cautious about consumer finance as a core business.
"It is a very high-risk business," she said. "We wanted to look more like a commercial bank."
First BanCorp has quadrupled its assets, to $9.2 billion, since 1991 as it added more commercial loans to the mix. It now has a 15% market share in commercial and industrial loans here.
"Most of our growth has been in commercial and residential loans," Mr. Alvarez-Perez said.
But Puerto Rican banking companies have had a hard time building share in commercial banking. Many of the larger industrial companies with operations on the island are foreign-owned and tend to have banking relationships elsewhere, leaving only their working capital with local banking companies.
The "supply of credit is greater than demand," said Jose Ramon Gonzales, the president of the Puerto Rico Bankers Association, in a speech for U.S. banking investors last month. That is one reason the market is so competitive, he said.
Thomas Monaco, a Keefe Bruyette analyst, said competition could get fiercer still if companies that have not tested the Puerto Rican market, such as HSBC Holdings PLC, decide to do so. (Last month HSBC showed itself committed to expanding on the U.S. mainland, striking a deal to acquire Household International Inc., the Prospect Heights, Ill., subprime lender, for $14.2 billion.)
Citi could also shake things up, but its strategy remains unclear, Mr. Monaco said.