Puerto Rico’s Popular to Repay TARP After Five Years

Popular Inc. (BPOP), Puerto Rico’s biggest bank, is repaying its U.S. bailout after more than five years.

Regulators approved the plan to pay back the $935 million Popular received during the credit crisis from the U.S. Treasury Department’s Troubled Asset Relief Program, the bank said yesterday in a statement. The San Juan-based company said it will issue about $400 million of debt to help fund the plan, which doesn’t include selling new stock.

The move shows U.S. regulators see Popular as having enough capital to withstand any new crisis, even as the island’s government struggles to revive an economy that has shrunk in five of the past seven fiscal years. The bank has been stockpiling cash to pay back the bailout, which ranked as the largest still outstanding for TARP’s capital purchase fund.

“We like to be at the top of lists -- but that’s not a list we wanted to head,” Chief Executive Officer Richard Carrion, 61, said in a phone interview. “This was a stigma.”

Popular rose 4.6 percent to $33.75 at 10 a.m. in New York, the highest since August. The shares have increased 12 percent this year through yesterday. First-quarter profit swung to $86.4 million after a loss of $120.3 million in the same period last year, according to a April 23 statement.

Warrant Buyback

The deal will trigger a non-cash charge to earnings, Popular said. The company also will seek to buy back a warrant for more than 2 million shares that was given to the Treasury as part of the bailout package that allows the holder to buy common stock at $67 each. The U.S. demanded such warrants from TARP recipients to compensate taxpayers for the risk of providing the emergency funds.

A buyback would need approval from the Treasury, which could opt to sell the warrants to the public. The department “will continue to work with the company as it executes its plan to repay taxpayers,” Adam Hodge, a Treasury spokesman, said in an e-mailed statement.

Carrion has sought to rid Popular of bad loans after its 2008 bailout and in October asked the Federal Reserve for permission to repay the funds.

Puerto Rico has been grappling with a shrinking economy, high unemployment rates and junk grades from the largest credit raters. In February, the U.S. commonwealth’s debt was cut to speculative grade by the three largest credit-rating companies. Governor Alejandro Garcia Padilla has proposed a series of budget cuts to help tackle the island’s mounting debt load, including freezing public workers’ salaries and closing about 100 schools.

Political Will

“There is still quite a bit of work to be done on the fiscal side and it will not be a smooth ride but I think it’s headed in the right direction,” Carrion said. “I’ve seen a lot of political will I have not seen in years.”

As Puerto Rico officials struggle to revive the economy, Doral Financial Corp. (DRL), the holding company for Puerto Rico’s second-largest mortgage lender, is suing the island’s government for voiding a 2012 agreement to pay a $229.9 million tax refund. Carrion declined to comment on Doral’s claims.

To contact the reporters on this story: Zeke Faux in New York at zfaux@bloomberg.net; Elizabeth Dexheimer in New York at edexheimer@bloomberg.net

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net David Scheer, Rick Green

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