For investors looking for exposure to the US commonwealth of Puerto Rico, banking stocks Doral Financial Corp (NYSE: DRL), First Bancorp (NYSE: FBP), OFG Bancorp (NYSE: OFG) and Popular Inc (NASDAQ: BPOP) offer the best bet as these Puerto Rico stocks trade on major US exchanges rather than the OTC. However, it should be mentioned that there has been a slowdown in Puerto Rico's economy which has also shrunk in five of the past seven fiscal years. Then last February, Puerto Rico's debt was cut to speculative grade by the three largest credit-rating companies while Governor Alejandro Garcia Padilla has proposed a series of budget cuts to help tackle the island's mounting debt load -including the freezing public workers' salaries and the closing about 100 schools.
On the other hand, Sterne Agee recently stated their belief that legislation to restructure public entities in Puerto Rico is positive for banks based there and the firm does not expect First Bancorp, OFG Bancorp and Popular Inc to have any losses or a significant negative impact as a result of the legislation. Sterne Agee also identified Popular Inc as its favorite name in the sector, followed by OFG and First Bancorp – giving all three a buy rating.
With the above thoughts in mind, here is a look at four Puerto Rico banking stocks to give you an idea about what the island might have to offer investors on the mainland:
Doral Financial Corp. A bank holding company engaged in banking, mortgage banking and insurance agency activities through its wholly-owned subsidiaries Doral Bank, Doral Financial Corp has operations on the mainland US (New York metropolitan area and northwest region of Florida) and Puerto Rico. Doral Financial Corp began surging as much as 70% on Wednesday when an appeals court in Puerto Rico reversed a lower court's ruling that it lacked jurisdiction to hear a case stemming from the company's tax dispute with the island's government. Back in May, Doral Financial Corp sued the government for voiding an agreement that required the Treasury Department to pay the company about $230 million in tax refund. The appeals court has since said the lower court erred when it ruled that it lacked jurisdiction to hear the case and ordered it to hold a hearing in which the Treasury Department must prove the basis for voiding the agreement. The company had received a letter from the Federal Reserve Bank of New York in May stating that it must classify the tax agreement as a loss and write off the asset. It should be noted that the dispute stems from the company's overstatement of earnings from 1998 to 2005. On Thursday, Doral Financial Corp rose rose 4.46% to $7.39 (DRL has a 52 week trading range of $1.87 to $25.00 a share) for a market cap of $49.10 million plus the stock is down 52.3% since the start of the year, down 55.5% over the past year and down 83.7% over the past five years.
"Our main focus for 2014 continues to be asset quality as we continue to face economic headwinds in Puerto Rico. We are pleased with our core operating performance during the first quarter achieving improvements in our core franchise metrics; net income improved to $17.1 million, or 15.5%, from $14.8 million in the fourth quarter, pre-tax pre-provision income improved to $56.9 million, or 19.5%, from $47.6 million in the fourth quarter mainly driven by our expense management initiatives and reduction in credit cost."
On Thursday, First Bancorp rose 1.46% to $5.56 (FBP has a 52 week trading range of $4.36 to $8.70 a share) for a market cap of $1.16 billion plus the stock is down 8.5% since the start of the year, down 27.5% over the past year and down 91.3% over the past five years.
"OFG has delivered another strong quarter – our fifth consecutive one – since the close of the BBVA PR acquisition. We continued to show impressive growth in book value and capital, with little or no noise in the numbers… Puerto Rico has made some good progress in addressing its fiscal situation and in meeting its immediate liquidity needs. While the economic environment is still challenging, we have proven our ability over the years to navigate such conditions. Looking beyond 2014, we expect a notable increase in reported earnings as non-cash, amortization of the FDIC indemnification asset will be significantly lower."
On Thursday, OFG Bancorp rose 0.87% to $18.56 (OFG has a 52 week trading range of $14.05 to $19.33 a share) for a market cap of $835.27 million plus the stock is up 8.7% since the start of the year, down 0.16% over the past year and up 83.8% over the past five years.
"This quarter we are reporting solid financial results as well as announcing an important initiative to restructure our U.S. business. The payment of a dividend from PCB is also an important step in more effectively managing our capital structure. Although the business environment in our home market is challenging, we expect to continue to make progress in our capital management initiatives as the P.R. economy stabilizes."
Popular Inc also announced that Popular Community Bank (PCB) will undergo a strategic reorganization in which it will divest its regional operations in California, Illinois and Central Florida and centralize certain back office operations in Puerto Rico and New York. On Thursday, Popular Inc rose 1.24% to $34.37 (BPOP has a 52 week trading range of $23.97 to $34.80 a share) for a market cap of $3.56 billion plus the stock is up 19.6% over the past year, up 8.1% over the past year and up 43.8% over the past five years.
Finally, here is a look at the performance of all four Puerto Rico stocks:
As you can see from the above chart, OFG Bancorp and Popular Inc have given investors a positive performance while Doral Financial Corp has been volatile and First Bancorp has at least been trending slightly upward the past few years.
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