First Bancorp still faces challenges after US$525mn capitalization - analyst

Wednesday, October 12, 2011

Puerto Rico's First BanCorp (NYSE: FBP) still faces several interrelated challenges after completing its US$525mn capital hike earlier this week with a group of institutional investors, financial services firm B Riley banking analyst Joe Gladue told BNamericas.

"They have to reduce their nonperforming asset (NPA) levels substantially. Doing so will likely result in additional charge-offs and additional quarterly losses. This will use up a portion of their capital, reducing the capital ratios that they just strengthened," he said.

All of this must be done while Puerto Rico still suffers from a five-year recession that shows no signs of ending.

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"The ongoing economic weakness will likely drive additional consumer and corporate borrowers to fall behind on payments, adding to the NPA problem. As long as there is no growth in the Puerto Rican economy, it will be very difficult for banks to reduce their credit costs significantly," Gladue said.

In addition, the interest rate environment is not very favorable.

"With the [US Federal Reserve] trying to lower long term rates, the yield curve is getting flatter, making it harder for banks to generate spread income on the difference between their loans and deposits," Gladue said.

The analyst revised his 2011 and 2012 earnings per share estimates for First BanCorp to losses of US$3.48 and US$0.45 respectively, from losses of US$1.84 and US$0.43 before, primarily due to the later than expected completion of the capital raise. The analyst maintained his buy rating on First BanCorp's stock.

On October 7, First BanCorp also announced the successful conversion into common stock the US$424mn of series G preferred shares held by the US Treasury.

San Juan-based First BanCorp is the second-largest financial institution in Puerto Rico, with US$14.1bn in assets. It also operates in the US and the British Virgin Islands.