Friday, April 20, 2012

CEO Of Bank Owing U.S. $935 Million Has Bad Debt And Mortgage Delinquencies

Popular Inc. (BPOP), the Puerto Rican bank that owes $935 million to the U.S. government, has surged 30 percent this year as more customers pay their debts on time. Its board members and their relatives aren’t always among them.

Chairman and Chief Executive Officer Richard Carrion’s sister and two of his nephews, one of whom is also a Popular director, have delinquent property loans to the San Juan-based lender, according to a regulatory filing. The bank has also restructured the loans of another director, the board’s head of corporate governance, and classifies his debts as “troubled,” the filing shows.

“The disclosures are seriously problematic,” said Orin Kramer, whose Boston Provident Partners LP hedge fund owns about 2 million Popular shares. “The role of the board is to protect against credit losses, not create them.”

Carrion, who’s been Popular’s CEO for almost two decades and sits on the board of the Federal Reserve Bank of New York, is seeking to help the bank recover from losses on soured home loans and repay the U.S. after the 2008 bailout. Directors with distressed debts won’t help Popular reduce costs from the bank’s loan portfolio, said Kramer, former chairman of the $70 billion New Jersey State pension fund.

“All related party transactions are subject to internal procedures and banking laws and regulations that require they be made on market terms and conditions,” Teruca Rullan, a spokeswoman for Popular, said in an e-mailed statement.

Any transaction involving directors and their “related business interests must be approved in advance by the board of directors, which is overwhelmingly comprised of independent directors,” she said, declining to comment further on behalf of Carrion’s family members and the directors.

Hedge Fund Investors

Popular has attracted hedge funds wagering on a rebound, including Valinor Management LLC and Paulson & Co., its two largest shareholders, according to data compiled by Bloomberg. The stock, little changed in today’s New York trading, has risen 62 percent to $1.81 from a two-year low on Dec. 19, as the bank grapples with a Puerto Rican recession that began in 2006.

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