Friday, February 16, 2007

Scotiabank to Buy 10% of First BanCorp in Puerto Rico

Bloomberg, Sean B. Pasternak, 16 February 2007

Bank of Nova Scotia, Canada's third-largest bank by assets, agreed to buy a 10 percent stake of First BanCorp for about $94.8 million to expand in Puerto Rico.

Scotiabank will buy about 9.25 million shares of San Juan-based First BanCorp at $10.25 a share through a private placement, the Toronto-based bank said in a statement today. That represents about 5 percent more than First BanCorp's average closing share price over the 30 days ending Jan. 30, First BanCorp said in a separate statement. First BanCorp shares closed yesterday at $10.64 in New York Stock Exchange composite trading.

Scotiabank under Chief Executive Richard Waugh has spent more than C$1 billion ($859.4 million) in the past year on acquisitions outside of Canada to boost international banking, which represented about a third of profit last year. The investment also sets the stage for a takeover of First BanCorp by Scotiabank as lenders in Puerto Rico seek buyers amid a slowdown in economic growth and borrowing, said Jason Bilodeau, an analyst at UBS Canada.

"We view the overbanked market as ripe for consolidation," wrote Bilodeau in a note to investors today. He has a "Neutral 1" rating on Scotiabank shares and doesn't own any.

First BanCorp shares rose 66 cents, or 6.2 percent, to $11.30 at 4 p.m. Shares of Scotiabank fell 24 cents to C$51.29 at 4:10 p.m. on the Toronto Stock Exchange.

As part of the agreement, First BanCorp said it will give Scotiabank notice if the company is to be sold during the 18 months after the private placement is completed. First BanCorp will also allow Scotiabank five business days to indicate whether it will present a counteroffer.

``We would not be surprised to see Scotiabank bid for First BanCorp in its entirety prior to the end of the 18-month period,'' wrote Genuity Capital Markets analysts Sumit Malhotra and Mario Mendonca, who have a ``buy'' rating on Scotiabank and don't own shares in the company.

Scotiabank is buying the stock as an investment, spokesman Joe Konecny said today. He declined to comment on whether the bank plans to increase its stake beyond 10 percent.

The private placement, which is subject to regulatory approvals, is expected to close within 90 days, First BanCorp said.

First BanCorp has 153 locations in Puerto Rico, Florida, and the U.S. and British Virgin Islands. Scotiabank has about 600 employees in 20 branches in Puerto Rico, the company said.

In March, First BanCorp and Puerto Rico-based financial companies Doral Financial Corp. and R&G Financial Corp. agreed to oversight by the Federal Reserve Bank and the Federal Deposit Insurance Corp. stemming from their improper accounting for mortgage loan transactions.

First BanCorp said today R&G Financial gave it about $50 million to pay down a commercial loan. First BanCorp said that in another transaction, it recharacterized $218 million in a commercial loan into sales. The agreement and accounting change completes First BanCorp's requirements to the regulators, spokesman Alan Cohen said.

Shares of First BanCorp declined 11 percent over the last year, compared with a 4.5 percent increase for the 31-member Standard and Poor's Small Cap Regional Banks Index. So far this year, the stock has gained 19 percent.