W Holdings Stock Sinks 20% As Competitors Raise Capital
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By Matthias Rieker / WSJ April 19, 2010
While the bidders for Puerto Rico's sick banks are lining up, confidence in the most prominent patient continues to erode.
W Holdings Co Inc. (WHI) hit a new 52-week low Monday, falling almost 20% to $5.49. The Mayaguez, Puerto Rico, bank's shares had been trading in the $18 to $20 range before Dow Jones Newswires reported in March that the Federal Deposit Insurance Corp. is looking for buyers for three sick banks on the island, including W Holding's Westernbank subsidiary.
Since that time, three Puerto Rican banks have raised capital to prepare themselves for a possible bid, and a total of four have declared that they are interested in a potential deal with the FDIC should any sick banks there fail.
Popular Inc. (BPOP), the island's largest bank, last week raised $1 billion, Oriental Financial Group Inc. (OFG) recently raised $100 million and Doral Financial Corp. (DRL) announced Monday it is raising up to $600 million. Those capital raises have made increasingly clear who would bid for Puerto Rico's weak banks.
The FDIC hopes to find a solution by the end of the month, according to people familiar with the matter.
R&G Financial Corp.'s (RGFC) R-G Premier Bank and EuroBancshares Inc.'s (EUBK) EuroBank are, like Westernbank, in a weakened condition. The FDIC has hired Deutsche Bank AG (DB) to help find a solution for Puerto Rico's banking problems, which could hurt the FDIC's insurance fund.
W Holding has about $20 billion of assets and about $8.6 billion of deposits. According to the FDIC, it is Puerto Rico's third-largest bank by deposits. It had been growing fast in the years before the financial crisis, and is one of the most innovative banks in Puerto Rico in terms of customer service and branch design. It managed to survive the island's banking crisis of 2005 in decent shape, when several banks, including R&G and Doral, struggled with badly structured mortgage derivatives.
Instead of packaging derivatives or relying on the mortgage business, W Holding raised deposits through brokers acting on behalf of institutional investors, like pension funds, to beef up its banking business. It built large, friendly looking branches to lure consumer and business borrowers in Puerto Rico's small but fiercely competitive banking market.
The strategy worked at first, but ultimately proved unsustainable. The bank lent aggressively to real estate developers, which ended up defaulting at a rapid rate when the financial crisis reached the island's already slumping economy. Puerto Rico entered into a recession in 2006. Regulators ordered Westernbank to shape up, improve management, oversight and capital.
The bank didn't return a phone call seeking comment. Earlier this month, it said in a filing with the Securities and Exchange Commission that its management and auditors are considering whether the bank could remain in business.
"Although we are currently in compliance with the capital requirements" regulators imposed, "we continue to experience losses... Our regulators may take other actions, including further enforcement actions, capital directives or even assumption of control of the bank," W Holding said in the filing. |
