Oriental looks for ways to deploy excess cash, announces new share buyback plan

Friday, February 4, 2011

Puerto Rico's Oriental Financial Group (NYSE: OFG) is looking for ways to deploy its excess US$450mn in cash and could do so by grabbing purchase opportunities, especially in the wealth management, trust and brokerage businesses, president and CEO José Rafael Fernández told a conference call.

Oriental also announced a US$30mn stock repurchase program that replaces its prior US$15mn program launched in 2007 and follows on the heels of its November announcement to increase its quarterly common stock dividend by 25% as it returns part of its capital to investors.

"From the seven banks that are here in Puerto Rico, there are opportunities to do business with some of them. In general terms, it seems to me that the local market needs to still have more consolidation, and we have excess capital, which puts us in a good position to evaluate possibilities," he said.

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On April 2010, Oriental closed the purchase of US$1.7bn in assets and 22 branches from failed Eurobank in an FDIC-assisted transaction.

"Puerto Rico is going through a pretty big transition in the financial services service side and people are focusing on banks primarily, but underneath there are insurance agencies, brokerage firms, trust businesses and wealth management businesses that we also compete against and look at, and those are also part of our outlook," Fernández said.

"I would say US$200mn would be the minimum we would to look to keep in cash," Fernández said, adding the company is looking for return hurdles close to 20% from any transaction it may carry out.


Oriental's net income available to common shareholders came in at US$3.9mn in 4Q10 compared with a loss of US$75.3mn in the year-ago quarter, thanks to stronger wealth management and bank service revenues and the declining cost of deposits, as the Puerto Rican market slowly becomes more rational, Fernández said.

Loans generated a record 47% of total interest income versus 42% in 3Q10 and 24% in 4Q09, and now represent 33% of assets as its balance sheet becomes more bank-like.

Oriental had total assets and equity of US$7.3bn and US$732mn, respectively, as of December 31.