Popular Inc. chief approves governor’s efforts to stabilize Puerto Rico
President, CEO Álvarez says Gov. Vázquez ‘doing a good job’ following July crisis
SAN JUAN — The head of Puerto Rico’s largest banking institution said Wednesday that he thinks Gov. Wanda Vázquez Garced is “doing a good job” in bringing stability to the island while repairing its frayed relationship with Washington, D.C., after the public unrest in July that brought down former Gov. Ricardo Rosselló Nevarez and led to her taking office.
“I have to give a lot of credit to [Gov. Vázquez Garced]. She’s done a good job repairing relations with the feds, in regaining that trust,” Popular, Inc. President and CEO Ignacio Álvarez said during a roundtable with business journalists. Popular, Inc. is the holding company of Banco Popular de Puerto Rico, the island’s oldest and largest bank.
Contrary to former Gov. Rosselló Nevarez, who had “very established ideas and was not so open to listening to others,” Gov. Vázquez Garced is “more open” to suggestions and new ideas,” said Álvarez, who added that such an approach is critical to handle the complexity of the commonwealth’s fiscal crisis and allay investor concerns.
“Puerto Rico has received a lot of negative publicity, especially after hurricanes [Irma and Maria],” the bank executive said. “During the events of July, many investors could not make out what was going on here. Investments [only] continue to be made by those familiar with the island, such as those in medical devices and aerospace [industries].”
Álvarez cited, for example, the governor’s willingness to work with the Financial Oversight & Management Board (FOMB) and reconsider changes to Act 80 of 1976, the commonwealth’s unjustified dismissal statute, which the board wants repealed as part of its plans to restructure the island’s economy to make it more enticing to investors.
While the bank executive said he does not necessarily favor repealing Act 80, as Popular “can handle it well,” he believes it can be “improved.” He said the law has “killed off” small and mid-size businesses.
Álvarez, who took over the helm of Popular fromRichard Carrión in 2017, said that to attract new investors to the island, the commonwealth needs to implement “structural changes” that go beyond austerity measures centered on across-the-board cuts in public employees and services, which he added “have not been done intelligently.”
“We have done very few structural changes. The business climate in Puerto Rico is not comparable to places like Ireland, Singapore and Costa Rica. It’s business as usual. The business climate here is not favorable,” the executive said, noting that the commonwealth still has to improve its permits process and economic planning. “People want things to change, but they don’t want to change the way things are done.”
Álvarez said that the latest local bank consolidations involving its two biggest competitors on the island – FirstBank and Oriental Bank – shows how the local banking market is adjusting to shifting international banking trends and changing island demographics, which includes a reduced population.
First BanCorp, the holding company of FirstBank Puerto Rico, announced last Monday the signing of a stock purchase agreement for the acquisition of Santander Bancorp, the holding company that includes Banco Santander Puerto Rico (BSPR), for about $1.1 billion in an all cash transaction. The transaction is expected to close in the middle of 2020, subject to regulatory approvals.
OFG Bancorp and Canadian financial institution Scotiabank announced in June the signing of a definitive agreement for OFG’s subsidiary, Oriental Bank, to acquire Scotiabank’s Puerto Rico operation for $550 million in cash and Scotiabank’s U.S. Virgin Island (USVI) branch operation for a $10 million deposit premium. The deal is expected to close by the end of this year.
The transactions would solidify FirstBank’s and Oriental Bank’s respective second and third place positions in the local retail banking market.
Álvarez said these consolidations will make these banks more competitive with Popular in the small and middle retail banking market, which he added has also been heavily serviced by credit unions.
“I have been telling our employees that with these bank consolidations we will have to really knuckle down,” he said.