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Bank of Nova Scotia Buys Assets of Failed Lender Premier Bank Puerto Rico

Regulators used emergency powers to stabilize Puerto Rico’s banks, putting almost a third of the U.S. territory’s deposits in Popular Inc. and giving control of another lender to a Canadian firm.

Deposit limits were waived to allow Banco Popular of Puerto Rico to hold $19.5 billion, or 31.4 percent of the island’s total, after its purchase of Westernbank Puerto Rico, the Federal Reserve said yesterday in a statement. Three banks on the island were shut at a cost to the Federal Deposit Insurance Corp. of $5.3 billion, the agency said in statements posted on its website. Combined with four other banks, the closures cost the deposit-insurance fund a total of $7.3 billion.

“The Puerto Rican banking system is somewhat unique” in being concentrated among a small number of lenders, FDIC Chairman Sheila Bair said on a conference call with reporters. “We think this will help the banking system in Puerto Rico and improve its capacity to provide credit support for the economy.”

U.S. banks are collapsing amid losses on residential and commercial real estate loans, and the FDIC’s list of “problem” lenders is the longest since 1992. The FDIC, which insures deposits and acts as receiver for failed banks, had 702 lenders on the list at the end of 2009. Regulators have closed 64 banks this year.

“We are projecting a lower number of failures this year,” Bair said. “We still think it will top the 140 that failed last year, but we are seeing some improvement.”

Bank of Nova Scotia

Bank of Nova Scotia, Canada’s third-largest bank, agreed to buy the $5.92 billion in assets of R-G Premier Bank of Puerto Rico in Hato Rey, the FDIC said. San Juan-based Eurobank was also closed.

Banco Popular acquired the deposits of Mayaguez-based Westernbank to remain the largest insured bank on the island. Deutsche Bank AG advised the FDIC on all three transactions, according to an e-mailed statement from Scott Helfman, a New York-based spokesman for the bank.

The Puerto Rico lenders cost the deposit fund about $500 million less than what the agency reserved and would have cost $3.5 billion more if the assets were sold off separately, Bair said. The agency paid off brokered deposits at the failed lenders and replaced the funds with low-cost financing for up to five years for the acquiring banks, Bair said.

Banks Seized

The FDIC also said Missouri-based lenders BC National Banks, of Butler, and Creve Coeur-based Champion Bank failed. Huntington Bancshares Inc.’s First Michigan Bank bought the operations of Port Huron, Michigan-based CF Bancorp. San Francisco-based Union Bank purchased about $3.5 billion in assets at Frontier Bank, of Everett, Washington, in the final closure of the week.

Bank of Nova Scotia becomes the third Canadian lender to take advantage of U.S. government-assisted acquisitions in as many weeks, following purchases by Toronto-Dominion Bank and Bank of Montreal. The Scotiabank acquisition, predicted by analysts this week, adds to the lender’s 17 branches on the island, according to its website. Bank of Nova Scotia spokeswoman Ann Derabbie confirmed the company’s purchase, declining to comment further.

Scotiabank, under Chief Executive Officer Richard Waugh, has spent about $2 billion on foreign acquisitions since 2007. The lender has operations in 50 countries, including Mexico, Chile and Jamaica. International banking accounted for 37 percent of the bank’s net income in the year ended Oct. 31. The Toronto-based lender has been in Puerto Rico since 1910, according to its website.

To contact the reporters on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net; Sean B. Pasternak in Toronto at spasternak@bloomberg.net.

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