Monday, June 1, 2020

Hedge Funds on the Prowl for Possible Bank Acquisitions

By on April 15, 2016

SAN JUAN – Several sophisticated stateside hedge-fund groups are assessing what measures the U.S. Congress will eventually take to revive Puerto Rico’s beleaguered economy before jumping at the opportunity to acquire one or several local financial institutions.

According to a stateside expert with knowledge of the matter, these sophisticated hedge-fund groups are on the prowl for acquisition opportunities, as they believe a recovering Puerto Rico economy would represent a huge profit potential.

“There’s always an interest. When you consolidate banks, there’s significant savings through greater efficiency. When you reduce costs, you can make a profit practically overnight,” the stateside expert commented to Caribbean Business.

“These hedge funds are interested in Puerto Rico, not only because of Acts 20 and 22, but also because they have identified Puerto Rico as a substantial ‘reversal to build’ opportunity, economically speaking,” said the stateside expert. “If congressional action ultimately involves a wage credit or some type of Section 936 [incentive], the potential is enormous.”

A similar type of action from Congress to deal with Puerto Rico’s lagging economy would boost Puerto Rico’s five local commercial banks, practically doubling their stocks’ value in a matter of months, the stateside expert said, adding that hedge funds believe local banks will be extremely profitable in a growing economy—as happened with Section 936 during the 1980s and 1990s.

“However, if the hedge funds see the Puerto Rico bank situation deteriorating more rapidly, they could move real fast, as they are experts at buying in a fire sale-type situation,” the stateside expert said.

Popular_Center_4These stateside hedge-fund groups have a lot of capital invested in the petroleum industry, which has taken a beating lately as a result of the dramatic drop in oil prices, and are looking to invest elsewhere, as they still have plenty of capital, the expert said.

“The hedge-fund groups know this opportunity won’t last forever and things can change overnight. However, they have made very clear through their lobbyists in Washington, D.C., that a solution must come first from Congress to improve the island’s economy, and then they would be willing to come here and buy what they want,” the stateside expert said.

For Rafael Blanco, Puerto Rico commissioner of financial institutions, these types of rumors are not unusual in the industry and they come and go, although he admitted not having heard anything recently.

However, he indicated the idea of hedge funds looking for possible bank acquisitions on the island is not a bad one, as local bank stocks are depressed.

“I wouldn’t be surprised if hedge funds are looking at acquiring local banks. These usually invest short-term, and if they see a quick turnaround, it’s not a bad logic. However, I don’t see Puerto Rico’s situation turning around quickly in two or three years,” Blanco commented.

Blanco, as well as other bank industry players, have reiterated Puerto Rico will have the number of banks the local market can sustain, hinting at future bank consolidations following the three-bank closures in 2010 and the closing of Doral Bank last year.

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