St. Thomas — Banco Popular is thriving 16 months after hurricane Irma damaged its branch offices in St. Thomas, followed by a crippling blow to its core infrastructure in Puerto Rico after hurricane Maria decimated both U.S. territories.
Banco Popular saw itself in an awkward predicament after critical infrastructure in Puerto Rico and the U.S. Virgin Islands was wiped out by both storms. Over a year later, Banco Popular — known as Popular now — has seen its customer base swell, even after many residents in both territories relocate to the U.S. mainland following the storms.
Since the Great Recession, Popular managed to acquired assets during a period U.S. regulators were restricting mergers, and large acquisitions, actively encouraging financial institutions to downsize their operations to weather the economic downturn.
As banks like Wells Fargo sold assets to appease regulators that saw the bank as too large after recent scandals, Popular closed on a lucrative deal just last year. Acquiring a portion of Wells Fargo’s Auto Finance Business in Puerto Rico for approximately $1.6 billion. Popular Auto purchased $1.6 billion in retail auto loans and $360 million in primarily auto-related commercial loans, expanding its already comfortable market share in the auto-loan industry in Puerto Rico and the U.S. Virgin Islands.
The ambitious deal with Wells Fargo has already exceeded profit expectations. Popular’s strengths are a boost for Puerto Rico’s slumping economy, with the company commanding 54% of the island’s deposits and 46% of loans according to a report by The Economist. The increase in market share can be attributed to the purchasing of Wells Fargo properties, as well as an uptick in Popular’s overall customer base.
Popular, with only $48 billion in assets is free to expand its reach through acquisitions and other deals without much regulatory hurdles. What’s most interesting about Banco Popular’s growth, is that the company slashed the rate for one of its most reliable revenue streams — ATM fees.
Popular decreased its ATM fees by 50% following hurricanes Irma and Maria. The bank also had one of the highest ATM fees in the Virgin Islands, so the decrease was a nice gesture to customers in the region still recovering from a catastrophic hurricane season.
CEO of Popular Inc., Ignacio Alvarez, stated in an earnings conference call on July 23, 2018 that compared to the year prior, new car sales increased by 20%, auto loans by 29%, and cement sales by 24%.
Sales tax bonds in Puerto Rico surged as much as 30% according to Pasquines on the heels of a blockbuster quarter from First Bank Puerto Rico and Popular Inc last summer. The bump came after both Popular Inc and First Bank reported higher than expected revenue for Q2 of 2018. Q2 of 2018 ended on June 30th.
Sales tax bonds have also increased in value due to a new debt restructuring deal between the territory’s sales tax financing corporation, COFINA, and its bondholders.
The deal will dismiss 32% of Puerto Rico’s debt, saving the territory approximately $17.5 billion out of its $70 billion debt total.
Shifting Market Share
Banco Popular and First Bank both have prominent branches on each island, but are based in Puerto Rico. First Bank reported that net interest increased by $5.8 million to $130.5 million last year.
If you’ve been following major announcements by financial institutions, you’ll notice a shift taking place. For years, Scotia Bank has been selling assets in the region, most recently selling operations in nine nations across the Caribbean — a region where its done business for over 129 years.
The bank currently only has one main branch on St. Thomas and a network of ATMs that tell a tale for those actually paying attention to the company’s silent retreat.
Scotiabank has been focusing its international expansion on four Latin American countries — Mexico, Colombia, Peru and Chile. That paid off in the fiscal fourth quarter, with the international-banking division posting record earnings and the biggest profit gain among the Toronto-based lender’s three main segments.
The pullout has created a massive opportunity for rivals like Banco Popular and First Bank. Both of which have been beefing up their marketing strategies to sustain positive growth on upcoming earnings reports.
Both banks, based in Puerto Rico, are publicly traded on the New York Stock Exchange.
The shift has paid off in the fourth quarter of 2018, with the international-banking division posting record earnings and the biggest profit gain among the Toronto-based lender’s three main segments. The company now gets 32 percent of annual earnings from outside its home country, which makes larger markets with denser populations more attractive for long-term growth.
Bank of Nova Scotia, based in Canada is also publicly traded. Scotia Bank’s gradual pullout and Kmart’s ongoing bankruptcy woes shed light on the precarious situation the Virgin Islands finds itself in when global markets shift — often directly impacting the health of international companies residents rely on for everyday services.
Offering less competitive interest rates than national banks is one pain points for some residents. Both banks ATM infrastructure, mobile apps, and online banking properties are either outdated or poorly maintained. The user experience on their Android and iOS apps also don’t offer the latest features and benefits of mobile banking.
Popular and First Bank’s implementation of new technologies like Apple Pay, Google Pay and Samsung Pay is sloppy, and can be frustrating for even the most savvy users. Popular’s main banking app for Android implements many features used by markets leaders like Wells Fargo, Bank of America and JP Morgan Chase.
Popular’s banking app for Android still targets API level 18 — or Android Jelly Bean. Popular’s web development team is still updating their main banking apps with software from 2012 to help customers access their money on the go.
Android Jelly Bean was released in 2012, with Android 9 Pie being the most recent successor. Popular’s influx of cash could provide an opportunity to invest in infrastructure upgrades and capital projects that often lead to long-term growth — new tech.