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2002 A Banner Year For Majority Of Local Banks
Reaped benefits of attractive interest rates, strong capital market activity, and diversified income sources
By KEN OLIVER-MENDEZ
December 26, 2002
As a group, Puerto Ricos leading banks continued to grow with gusto in 2002. The sectors seasoned, world-class executive teams sought to make the most not only of the growth opportunities they respectively identified during the year, but also of favorable external factors such as the low interest rates which drove record mortgage production, strong capital market activity, and increasingly diverse income sources.
The sector continued to be characterized by fierce competition, as well as by expectations of further consolidation. This year, for example, Eurobank purchased the ailing Banco Financiero of Ponce. Top institutions also showed a tendency to effectively diversify income sources.
Assets held by the 11 commercial banks that serve Puerto Rico grew from $55.7 billion on June 30, 2001 to $66.3 billion on June 30, 2002, according to the Office of the Commissioner of Financial Institutions.
The year saw sector leaders frequently distinguish themselves among their stateside peers. Doral Financial Chairman & CEO Salomon Levis, for instance, graced the cover of U.S. Bankers May 2002 edition. The magazine ranked Doral No. 1 in return on equity to shareholders, while W Holding, R&G Financial, First BanCorp, Popular Inc., and Santander BanCorp were also ranked among the top 100 U.S. banking companies.
With W Holding Co. and R&G Financial moving to the New York Stock Exchange (NYSE) during the past 12 months, the sector was also the focus of more admiring attention on Wall Street. Coverage of local financial stocks expanded significantly, and major institutional investors conferences were programmed by New York investment banking firms such as Keefe Bruyette and Brean Murray.
The conferences attracted high-ranking participants. For example, at the Brean Murray conference, NYSE Chairman & CEO Dick Grasso hailed Puerto Rican financial stocks as one of the financial markets best-kept secrets.
Local brokerages sought to limit their exposure to the bear market, and produced a good flow of fixed-income products throughout the year. UBS, Santander Securities, and Popular Securities each launched new local mutual funds.
During 2002, Puerto Ricos securities firms benefited from underwriting Commonwealth bond issues (topping $7 billion once again this year), as well as from several major private development bond issues, common and/or preferred stock issues by W Holding, R&G Financial, and First BanCorp.
Mortgage banking players strong, diversifying
The favorable interest rate environment, coupled with the islands housing shortage and aggressive federal and local government affordable housing subsidy programs, fueled a high level of activity in the sector throughout the year.
Mortgage banking leaders such as Doral and R&G were also heavily involved in expanding their franchises on the U.S. mainland in 2002. While Doral Bank continued to grow its franchise in New York City, R&G selected Central Florida for its effort to replicate its successful mortgage and commercial banking model.
R&G Financial executed the biggest stateside bank acquisition ever by a Puerto Rico financial institution when in June 2002 it completed its acquisition of Crown Bank, a 15-branch Central Florida-based bank with more than $807 million in assets as of Sept. 30, 2002. The acquisition proved to be a boon to R&Gs earnings from the outset. R&Gs previously acquired stateside mortgage bank, Continental Capital, was integrated into the Crown operation.
R&Gs acquisition of Crown saw R&G overtake Popular in the Sunshine State, where Banco Popular has a 10-branch network. As of mid-2002, the combined assets of Populars Florida operation were less than $300 million. Nonetheless, signaling its commitment to Central Florida, Popular opened up its North America call center there in July.
Meanwhile, FirstBank moved to consolidate its leadership position in the neighboring Virgin Islands, following its mid-2002 acquisition of the $590 million-asset JPMorgan Chase operation there.
Angel Alvarez, First BanCorp chairman, president & CEO, indicated his institution also plans to increase its ownership stake and activities in two small South Florida banking institutions, Southern Security Bank and Premier American Bank.
Changes at the GDB, EDB, and Commissioners Office
The year saw changes in the top management of major government financial and regulatory institutions. At the Government Development Bank, Juan Agosto Alicea passed the baton to Hector Mendez, who in turn assembled several new players on the GDBs senior management team.
Mendez also announced plans to move the GDB from the Government Center at Minillas to a new site adjacent to the Sagrado Corazon Urban Train station. The plans--which include integrating the Economic Development Bank (EDB) and the Office of the Commissioner of Financial Institutions into a new, consolidated government financial center--are expected to be completed and formally unveiled in early 2003.
The presidency of the EDB, which had been plagued by growing doubts about its future, was passed to Antonio Faria in June. The new president welcomed Calderon administration plans to make the EDB a subsidiary of the GDB, and embarked on implementing aggressive turnaround strategies for the institution.
Faria was replaced as Commissioner of Financial Institutions by his erstwhile deputy, Alfredo Padilla. Among the new commissioners early initiatives was a new consumer education campaign.
Mayaguez-based Westernbank continued to turn many heads, moving aggressively to gain market share. For the second year in a row, the institution led the pack in individual retirement account (IRA) deposit growth. In the summer, it launched a new division, Westernbank Expresso, to compete with the islands small nondepository, personal loan companies.
Westernbank also moved to position itself for further gains in metropolitan areas throughout the island where it has yet to establish a full-fledged presence. It made the Hato Rey Tower building its headquarters for the San Juan region--as well as for the Westernbank Expresso and Westernbank Business Credit divisions--renaming the building Westernbank World Plaza.
Among the highlights at Popular was its long-awaited launch and heavy promotion of Premia, a comprehensive customer rewards program. Popular also announced that it would invest more than $197 million over a two-year period in the construction, renovation, and expansion of several of its principal corporate facilities on the island.
The biggest single project is the $35 million renovation and expansion of Popular Center in Hato Rey, to include 150 additional parking spaces, new retail and exhibition hall wings, a theater, and a conference center. An elevated walkway is also slated to connect Popular Center to a new Popular building currently under construction at the corner of Ponce de Leon Avenue and Popular Street.
In other developments, Oriental became the first financial institution to launch a local version of the Roth IRA, a retirement savings instrument offering the advantage of tax-free distribution of earnings. Legislation creating the new IRA provides tax incentives for rollovers executed before April 15, 2003. Increased tax deductions for both conventional and Roth IRAs, to be phased in over the next few years, also promise to continue spurring growth.
Management changes, challenges
Santander BanCorp began to demonstrate its determination to reverse a second consecutive year of mostly unfavorable results. In October, under the leadership of President & CEO Jose Ramon Gonzalez, a turnaround plan was set in motion. Gonzalez also succeeded Populars David Chafey as president of the Puerto Rico Bankers Association.
Citibank Puerto Rico expected to consolidate gains once again as a result of its September 2002 move to the North America division and its implementation of aggressive new strategies in credit card, cash management, and financial planning services.
In late March and April, BBVA Puerto Rico had to weather allegations of ties to money laundering schemes in Latin America. Spanish Judge Baltasar Garzon visited the island for a much-publicized investigation into the matter.
BBVA Puerto Rico President Antonio Uguina denied the allegations, and Spanish authorities also subsequently issued statements undercutting the credibility of the allegations.
The controversy didnt stop BBVA from implementing several components of the institutions new strategic plan, which includes consolidating the branch network, launching BBVA Mortgage, and offering new commercial and auto loan products.
They Said It This Year
"The great companies of Puerto Rico are the best-kept secret in the financial markets."--Dick Grasso, chairman & CEO of the New York Stock Exchange
"It will be the government financial center."--Government Development Bank President Hector Mendez upon announcing plans to build new, combined headquarters for the GDB, the Economic Development Bank, the Insurance Commissioner, and the Commissioner of Financial Institutions
"The allegations linking BBVA Puerto Rico to money-laundering activities are totally false."--BBVA Puerto Rico President Antonio Uguina
This Caribbean Business article appears courtesy of Casiano Communications.