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Forbes Inc.

Show Me The Dinero; Banco Popular Has Toiled To Be The Bank Of The Hispanic Unbanked For 43 Years. Now The Big Guys Want To Take Over

By Tatiana Serafin

1 November 2004
Copyright © 2004 Forbes Inc. All rights reserved. 

Volume 174 Issue 9

Banco Popular has toiled to be the bank of the Hispanic unbanked for 43 years. Now the big guys want to horn in.

As loud Spanish music competes with Spanish-speaking voices, bank manager Elba Pichardo walks the floor of a crowded Banco Popular branch in upper Manhattan, shaking hands and nodding at familiar faces. Spying a commercial client, she asks in Spanish what he needs and then escorts him to open a personal checking account. "I didn't want him to wait," Pichardo explains.

The nation's largest Hispanic-owned bank, Banco Popular will need such neighborly tactics to stave off big banks in what has suddenly become a hot market for Hispanics' banking business. Hispanics are the nation's fastest-growing ethnic group at 13.3% of the U.S. population, a share expected to grow to 15.5%, or 48 million people, by 2010. Former U.S. Treasurer Rosario Marin estimates that 40% of the 10 million people in America who do not have direct relationships with a mainstream financial institution are Hispanic. Hence the chase by U.S. and foreign banks for Hispanic dollars.

By the Numbers

Next in Line

Banks are looking to grab a share of the growing Hispanic banking dollar.

65% of Hispanics have bank accounts.

95% of non-Hispanic whites have bank accounts.

$22 billion Hispanic checking account balances in 2004, up from $17 billion in 2000.

70% of new U.S. financial services growth will come from Hispanics in the next five years.

Sources: Pew Hispanic Center; Research & Advisory Group; TowerGroup.

Bank of America has designated 2,450 branches as Hispanic (which it defines as having a 10% or more Hispanic population within a 3-mile radius of the branch), while Citibank has more than 300 (it uses a 25% threshold). This means staffing those branches with bilingual speakers and with Spanish marketing materials at the ready. Then there are the Spanish conquistadors, recently on a global acquisition spree. Spain's second-largest bank, Banco Bilbao Vizcaya Argentaria (BBVA), in September acquired Laredo National Bancshares, which has a 23% market share in the Texas-Mexico border area.

These giants make Popular look small indeed. It has just 127 branches in the U.S. and not even a 1% share of total bank deposits in the metropolitan areas it serves. Chief Executive Richard Carrión, 52, the third generation of his family to run the bank, remains unperturbed, at least in public. "Obviously we have to respect the size of these folks and the financial resources they have," he says. "[We are] confident in our ability to compete with them."

Banco Popular began as the bank of the poor in Puerto Rico in 1893. By the time Rafael Carrión Pacheco took control of Popular in the 1920s the bank was promoting innovative ways for lower classes to save, such as steel coin banks given to customers who pledged to bring them back periodically so the money collected could be deposited into savings accounts. It began its move into the U.S. in 1961 as Puerto Ricans streamed north.

Today the bank has 11,000 employees and $39.6 billion in assets. With U.S. assets of $15.4 billion, it's the 49th-largest bank here. Its branches are mainly in or around New York City and in California, Texas, Illinois and Florida. Though it slightly underperforms its domestic peer group in return on assets and return on equity, Popular's earnings per share are growing faster (15.3% vs. 12.7% compound annual growth over the last five years). Its stock is up 31% over the past year, yet remains fairly cheap at 15 times trailing net.

The hottest battle is over Hispanics who don't have bank deposits. That doesn't mean they don't buy banking services. They send $38 billion abroad annually, a third of that to Mexico, using Western Union, check-cashing outlets and banks for the remittances. Banks want not only the fees--which average 4.4% of the transfer--but also a chance to persuade the customer to open an account or take out a loan.

Popular is taking a different course. While it offers remittance products at its bank branches, it is also running 130 Cash Express check-cashing outlets as an inexpensive market-entry point. The business is barely break-even, but the service links customers to nearby Popular branches so that customers might open savings and checking accounts.

Many banks shy away from check-cashing outlets because of their sometimes deserved reputations as havens for money laundering and usurious paycheck lending. Popular's North American head, Roberto Herencia, counteracts the sector's seedy image by proudly displaying the Popular name alongside Cash Express.

For Hispanics who have been here longer, Popular pitches annuities and CDs. Its two current CD offerings: a 12-month CD with a 2.75% yield and a 36-month CD with a 4% yield. In July Popular partnered with AIG to offer Popular Choice Annuity, an investment vehicle that guarantees a first-year bonus rate of 5.15% and several interest-rate options thereafter. Its commercial loans--those under $10 million to small business owners, say, for taxi medallions in New York City--have landed it the number six spot on the Small Business Administration loan rankings. Number one is Bank of America.

Carrión has decided that at the least the bank needs to bulk up. It recently bought the 27-branch Quaker City Bancorp in southern California and Kislak National Bank's 8-branch network in Miami; it's also looking at the 10-branch Unibank there. "If you want to be taken seriously as a bank for Hispanics in the U.S. nationally, you have to have a credible presence in Miami," says Cohen Bros. analyst Joseph Gladue. More deals are in the works, say Popular executives.

But what it lacks in scale, Popular tries to make up in intangibles--mostly, its Hispanic brand identity. At Popular branches in Hispanic neighborhoods, most employees speak Spanish and live nearby. On Spanish-language network Univision, Popular sponsored a 15-minute segment on a variety show, Sábado Gigante, on Saturdays.

Popular forks over millions to get big-name Latino singers like Ricky Martin and Marc Anthony to perform at an annual concert. The concert is broadcast in parts of North and South America in December, and CDs and videos of it are later sold in Popular branches, generating traffic. Carrión served as the grand marshal of New York's 2004 Puerto Rican Day parade.

Popular says Banco Bilbao made a failed bid for it (Popular won't say when), backing off after being rebuffed. "We don't want to be a Hispanic banking arm of a big institution," insists Carrión. Others may have a different idea.

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