Spotlight: Major Puerto Rico player emerging from OFG-Scotiabank deal

With OFG’s absorption of Scotiabank’s Puerto Rico and US Virgin Islands operations, the new entity will hold US$9.4bn in assets with a combined loan book of US$7.2bn, according to pro forma projections presented by OFG executives on Thursday.

OFG, the San Juan-based parent of Oriental Bank, Oriental Financial Services and Oriental Insurance, announced the US$550mn deal to take over the Canadian bank’s operations in the US territories.

The sale is part of Scotiabank’s ongoing reorganization in the Caribbean and Central America.

In a webcast Thursday, OFG executives said once the absorption is complete, it would have some 500,000 clients and claim Puerto Rico's number two position in the deposit market (14.1%) and also become the second-largest mortgage player with a US$5.1bn servicing portfolio.

The bulked-up OFG/Scotia entity would still be third in assets behind First BancCorp. (US$12.4bn) and market leader Popular (US$48.7bn), who also holds the largest deposit market share (61.0%).

The new entity will be comprised of 56 branches, the second most of any bank on the island after Popular with 163.

After the transaction, more than half (55.1%) of the joint loan book will consist of mortgages, with 39.3% in residential real estate, 7.4% in owner-occupied commercial real estate and 8.4% in non-owner occupied commercial real estate. Commercial and industrial lending will make up only 14.9% of the loan book, with 29.5% in consumer lending and other credit.

The OFG executives said they see the combined operation getting off the ground in 2020 with the deal likely closing later this year following regulatory approval from the Federal Reserve, the FDIC, and local financial regulators in Puerto Rico and the USVI.

José Rafael Fernández, CEO of OFG and Oriental Bank, said the underlying motivation for the deal was to trigger growth, noting, “This transaction adds a talented team of bankers from Scotia that will deepen our bench, precisely for our passing and surpassing the US$10bn-mark [in assets].”

Fernández added that the firm is still looking to sell off about US$1bn in assets, in an ongoing effort to improve overall asset quality.

“The plan that we’ve been executing for the last two or three years, is [that] there are opportunities for us to look at some of these residential mortgages that might be non-performing, and if we look at the Puerto Rican economy, which has actually turned, with the federal money coming down, we might take a look at it, but it’s something that we’ve been doing all along.”

OFG said the acquisition price of US$550mn takes into account Scotiabank Puerto Rico’s plan to upstream a US$500mn dividend to its parent.

“Prior to closing, Scotiabank Puerto Rico may elect to pay additional dividends to its parent of up to $125 million,” it said in a press release. “If that happens, the purchase price will be adjusted downward by the amount of the additional dividends.”