An enforcement action by the U.S. Federal Reserve is aimed at ensuring that First BanCorp, the parent company of FirstBank, maintains a strong position as Puerto Rico’s economy continues to struggle with effects of the worldwide recession, a company official said Thursday.
Within 30 days – a period that expires in early July – the company must present a plan to the Fed for meeting certain fiscal benchmarks, namely “leveraged capital ratio” and “Tier 1 ratio, ” two standards by which a financial institution’s soundness can be assessed.
Alan Cohen, First BanCorp’s senior vice president of marketing and public relations, said Thursday the company actually met those standards in its quarterly report for March 31 and is continuing efforts to raise an additional $500 million in capital.
The items covered in the order are for the most part not the kinds of things FirstBank customers are going to notice, Cohen said, as they do not affect day-to-day operations. FirstBank is regulated by the Federal Deposit Insurance Corporation, and First BanCorp, the holding company for FirstBank, is regulated by the Federal Reserve. But both have the same aim – to make sure the bank’s depositors are protected in the rocky economy.
To meet the Fed’s order, First BanCorp must submit the plan within 30 days, at which time the company and the regulators will agree to a timeline for achieving those goals. Only if those timelines are not met will First BanCorp be ordered to come up with a contingency plan which, as a last resort, could require the “sale, merger or liquidation of” FirstBank.
Also under the terms of the agreement, reported last week by First BanCorp and posted on the Fed’s website this week, the company was barred from paying a dividend to stockholders, which the company suspended in middle of 2009.
The action comes after a difficult year for the Puerto Rican banking industry. Earlier this year three of the island’s banks – Westernbank, R-G Premier Bank, and EuroBank – collapsed. In late April federal regulators closed them and sold them to stronger competitors, a move that injected almost $7 billion in capital into the island’s banking system in the process.
Cohen said the recession that turned the U.S. economy upside down about two years ago struck Puerto Rico first, and the territory is still struggling while recent indicators in the States suggest the economy there is beginning to pull out of the doldrums.
First BanCorp is Puerto Rico’s second-largest bank holding company by assets and deposits, trailing Popular Inc., the holding company of Banco Popular. First BanCorp has been struggling with troubled real estate and construction loans, the same circumstances that prompted the worldwide recession.
Earlier this year, First BanCorp reported a $107 million first-quarter loss, compared to a $22 million profit for the same period of 2009. That loss was based primarily on provisioning for loan losses, which reached $123 million. As the economies where FirstBank operates stabilize and the performance of its loan books improve, the bank company should be able to show a stronger picture in future quarters, Cohen said.
