Despite Insecurities, Banco Popular, Inc. Back With In
    Crowd
    June 21, 2010  PSW Staff
    Like most smaller bank stocks, BPOP peaked back in 2005, and then proceeded to lose
    95% of it's value over the next five years.  The decline turned sharply lower when the bottom
    fell out of an overheated mortgage market, and got even worse when a second wave of
    defaults on commercial loans began taking shape which is expected to peak later this year.  
    Being a smaller bank, Banco Popular has a larger percentage of it's assets exposed to the
    commercial lending sector, and the commercial properties backing these assets have seen
    huge declines in property value. They also have less availability to easy capital than the big
    banks.  Add in the fact that this company does business mostly in Puerto Rico and
    elsewhere in Latin American where the recovery has been even slower than in the U.S. and
    you can see why BPOP's performance has lagged behind the giant lending institutions.

    Over the past year, however, BPOP has been on the rebound along with other small banks,
    and has significantly outperformed it's peers.  The stock is currently trading below book value
    and right at the cash per share number which may sound cheap, but is actually a premium
    compared to many similarly sized banks.  The stock has also seen a huge influx of trading
    activity over the past several months on the NASDAQ, and has even been more active than
    Sirius XM Radio averaging over 50 million a day in dollar volume.  The company currently has
    600 million shares outstanding.

    All of the buzz may be for good reason, as several developments have helped the bank obtain
    stronger footing going forward.  Back in May, the FDIC took over three banks in Puerto Rico.  
    Popular Inc. which is already the largest bank in that region by deposits, ended up taking an
    even larger share after they acquired more from one of the troubled banks assets while the
    FDIC's Deposit Insurance Fund essentially took care of most of the debt.  This gives BPOP
    the best chance for recover should things begin to pick up in Puerto Rico due to the
    governments restructuring.  Unemployment in Puerto Rico is currently around 15%, well
    above what it is on the mainland.

    Additionally, Banco Popular has more loan loss reserves than it does potential loan losses.  
    This is better than most of the banks that are heavily leveraged to commercial real estate and
    other non performing assets.  Recent acquisitions have been funded by stock sales, but with
    the planned sale of a subsidiary coming up potentially netting 700 million, more stock sales
    do not seem likely.

    Despite some serious challenges, this stock may continue to stand out in the crowd.
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