Garnet Capital Advisors Blog

Regulators shut down Doral Bank on Friday, Feb. 27, after the financial institution faced a string of challenges including a dispute surrounding a tax refund, government investigations and sharp declines in stock prices. The Office of the Commissioner of Financial Institutions of Puerto Rico announced in a statement Friday that it had appointed the Federal Deposit Insurance Corporation receiver. 

Receivership
The FDIC announced that Doral Bank's 26 branches would resume their ordinary operations starting Feb. 28. The government agency revealed that Hato Rey-based Banco Popular de Puerto Rico would run eight of these branches and also buy the operations of Doral pursuant to a purchase and assumption agreement. The FDIC also assured customers it would continue to protect the deposits previously held by Doral Bank. 

"Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits," the FDIC said in a statement. 

Splitting up bank locations
Aside from its agreement with Banco Popular, the government agency indicated that it negotiated deals with three separate banks to acquire the remaining 18 branch locations. Banco Popular North America, which is affiliated with Banco Popular, will run the three Doral Bank locations in New York City. 

Another five branches residing in Florida's panhandle will fall under the control of Centennial Bank, based in Conway, Arkansas. As for the 10 remaining branches in Puerto Rico, Santurce-based FirstBank Puerto Rico will both operate them and also assume their deposits. 

Tax refund dispute
While Doral Bank has faced numerous headwinds lately, one key contributor to its failure was the developments surrounding a tax refund the company received from Puerto Rico's Treasury, according to Bloomberg. 

Last year, the FDIC informed the struggling bank it could not apply the $229 million rebate toward fulfilling its Tier 1 capital requirements, the media outlet reported. Last month, the status of this refund took a turn for the worse, as an appeals court ruled that the U.S. territory's government does not owe Doral a refund. 

The financial institution, which has not turned an annual profit since 2005, has seen its stock plunge 94 percent in the last year, the media outlet reported. While Doral's shares have risen to as much as $129.60 in April 2010, they fell 46 percent on Feb. 27 to reach $0.72 each. 

Loan sale opportunities
Regulators' decision to shut down Doral could create opportunities for financial institutions if the FDIC sells the organization's loans in receivership. If financial institutions are interested in learning more about the loan sales that could take place in Puerto Rico, they might benefit from speaking with Garnet Capital Advisors, a loan sale advisory firm with experience spanning many different debt types.