Popular falls following downgrade predicting continued losses, need for another capital raise

Popular falls as analyst cuts rating over losses

NEW YORK — Shares of Popular Inc. fell Monday after an analyst predicted the bank will continue to post further losses and need to raise additional capital.

B. Riley & Co. analyst Joe Gladue said the Puerto Rico-based parent of Banco Popular is in a much stronger capital position than it was a year ago, after it sold 357.5 million new shares in August and made a deal with the U.S. Treasury regarding its holdings following the bank bailout.

But the bank has continued to post losses, which have cut into the very capital reserves it added. “Furthermore, we expect losses to continue for at least the next year, if not longer, further straining capital levels,” Gladue wrote in a note to clients. “As a result, we believe that Popular will need to raise capital in the not too distant future.”

That could mean another stock offering. But he expects the bank will continue its recent balance sheet reductions, using methods like asset sales and loan paydowns to reduce its total assets. Gladue said he thinks Popular would like to sell more of its banking operations in the U.S., but that may be difficult given the number of bank failures that have fueled FDIC-assisted takeovers of smaller banks.

One possibility is selling its Evertec business, a financial transactions processing and technology unit.

“Due to its growing revenues and continued profitability, even during the worst of the economic downturn, we believe that Evertec would be attractive to a number of potential acquirers,” Gladue said. “These same characteristics make Evertec an asset that Popular would very much like to hold onto, but selling this unit is an option the company must consider.”

He estimates the business could be valued between $400 million and $907 million. A sale in the middle-to-high end of this range could cover most or all of Popular’s projected losses, Gladue said.

The analyst said Popular faces an “unpleasant choice” to either sell Evertec or issue more stock.

Popular Chief Financial Officer Jorge A. Junquera said the bank’s stock has been volatile lately, and would not attribute Monday’s drop to the B. Riley downgrade.

He would not comment on the need to raise additional capital, but said the bank is “looking at all the options in these very difficult times.”

Evertec is “always mentioned by analysts” when they discuss potential ways to raise money, Junquera said. “It is a very good business and it could derive a lot of capital, if sold.” However there are no plans to sell it right now.

“It is a potential source of capital, so it is something that has to be kept in mind, the same as issuing shares,” the finance chief said.

In afternoon trading, Popular shares fell 17 cents, or 6.2 percent, to $2.56. The stock has changed hands between $1 and $3.66 in the past 52 weeks.