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Popular, Inc. Message Board

  • ilestlouisfrance ilestlouisfrance Sep 29, 2013 8:43 AM Flag

    TARP Re Payment Satus

    What is holding the government from allowing Popular inc from paying them off? At the holding company level post the last EVTC sale, they could do it with some additional consertative borrowings. That is from a cash point of view, obviously.

    The issues that may be of concern by the government and why they do not want repayment yet could be;

    1. Asset value of the Tax loss carry forward at BPNA
    2. MOU ( I could be wrong, but I have not seen any kind of press release that indicates that they are out of it)
    3. Exposure to PR BONDS and PR Government/Agencies loans.
    4. PR Economy going forward.

    There is something that does not click here.

    Maybe management can consider expanding on these issues to the extent that they can on the next conference call. Specially #1,#2,#3. They usually cover #4.

    Any comments would be helpful.

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    • Just for fun, I'll answer #3 for you. From the FDIC Q2 Call report they had 6 mil in income in the first half for the category that would include municipal bonds. Suppose that half of that income or 3 mil was for Puerto Rico. Suppose that the average coupon on those PR munis was around 5%. 5 mil in income would then imply about 3 mil * 40 = $120 mil in principal of PR muni debt. Most PR munis are down around 20% in the last 2 quarters so they would have a loss in the ballpark of 24 mil in Q3 if they marked the bonds to market. Perhaps they could choose to claim the price decline was "temporary" and not mark the munis to market.

      A 24 mil direct hit for BPOP is not that great. The problem is that the indirect hit from the PR economy tanking could be much, much greater. That's what management should be talking about. Don't you think it would be sporting of them in light of the muni crisis, to give an operational update where they discussed this issue? Seems like they want to save it for the Q3 report instead.

      Tough to see shareholders treated like mushrooms (kept in the dark and fed you know what).

      From the Call report:

      1. U.S. Treasury securities and U.S. Government agency obligations (excluding
      mortgage-backed securities).......................................................................................
      2. Mortgage-backed securities.................................................................................... RIADB489 30,000 1.d.2.
      1.d.3.
      RIAD4060 6,000
      3. All other securities (includes securities issued by states and political subdivisions
      in the U.S.)..................................................................................................................
      e. Interest income from trading assets.............................................................................. RIAD4069 9,000 1.e.

      • 2 Replies to deep_value_investor
      • Good analysis. Do you have any comments on the resistance by the government to getting paid?

      • If they did take a 24 mil hit (by marking to market rather than burying it as a "temporary" impairment) in Q3 due to markdowns on muni-bonds, that alone would bring the Q3 earnings down from the analyst estimates of about 75 cents to 50 cents. How would the stock trade if they missed by 25 cents?

        The thing that's more worrisome though I think for the longs is that other than the 1 analyst who already downgraded the stock and cut estimates, the 2013 and 2014 consensus estimates have barely been reduced over the past 90 days. Shouldn't they be reducing estimates to reflect the recent drop in munis, spike in unemployment, general slowdown of the PR economy and possibility of some Federal spending cutbacks in the budget battles?

    • The direct exposure to munis is not that great. They don't break out Puerto Rico munis separately in the Call reports, but you can check the total exposure to all Munis if you dig through the report. The problem is really the indirect exposure. The PR govt and various other agencies can't borrow on reasonable terms, so they are forced to layoff workers. That's one reason unemployment is rising in PR. Higher unemployment hurts real estate prices, business sales, credit risk and the economy in general. That is the #1 issue you should be concerned with. When the Q3 report comes out, look for an increase in 30 - 89 day past due loans (a leading indicator of credit problems).

      • 1 Reply to deep_value_investor
      • What's the #2 issue to look at? With the exception of Washington DC, there is probably no other region of the country where the economy is more dependent on Federal spending than PR. As anyone watching the news is now aware, Federal budget battles over Obamacare and the debt ceiling are coming to a head in the next month.

        One reason the PR economy turned down (even before the muni crisis) was the impact of the Sequester related spending cuts on the economy. Will there be some additional shocks to the PR economy in the near term due to new federal spending cuts or a shutdown?

 
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