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Puerto Rico Bank Failures Loom: Report

NEW YORK ( TheStreet) -- The Federal Deposit Insurance Corp. has received bids for three under-capitalized banks based in Puerto Rico, according to a published report.

While FDIC spokesman Greg Hernandez said the FDIC's bidding process was "highly confidential," the Wall Street Journal reported Thursday that agency's bidding deadline passed on Tuesday for interested parties to put in offers for Westernbank Puerto Rico, a unit of W. Holding Company (WHI), R-G Premier Bank, which is held by R&G Financial (RGFC), and EuroBank of San Juan, a subsidiary of EuroBancshares (EUBK).

According to the Journal, bidders have included Popular Inc. (BPOP - Get Report), which holds Banco Popular Puerto Rico of San Juan and Banco Popular North America of New York; Oriental Financial Group (OFG - Get Report); Doral Financial (DRL); and Banco Santander SA (STD), the Spanish bank that holds Banco Santander Puerto Rico, along with Sovereign Bank of Wyomissing, Pa., one of the largest U.S. thrifts, with $74 billion in total assets.

The table below provides a snapshot of the financial condition of the ten biggest banks in Puerto Rico, based on asset size, as of Dec. 31. Of the institutions listed, eight were considered well capitalized at the end of 2009 according to the regulatory guidelines that apply to most banks. The exceptions were R-G and EuroBank, since those institutions had total risk-based capital ratios below the 10% threshold.:

Puerto Rican Banks

Most of the Puerto Rico institutions had nonperforming asset ratios that greatly exceeded the national aggregate of 3.31% reported by the FDIC. Nonperforming assets include loans past due 90 days or in nonaccrual status, along with repossessed real estate.

Despite the high level of nonperformers, loan losses hadn't yet come to a head for most of the Puerto Rico institutions. Only three institutions had net charge-offs for 2009 exceeding the national aggregate of 2.89%.

Still, six of the institutions posted net losses for 2009, mainly from elevated loan loss provisions as they anticipated coming loan losses.

-- Written by Philip van Doorn in Jupiter Fla.
Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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