Freedom Line Blog

Late last year, we posed several questions to Banco Popular President and CEO Richard Carrion, in conjunction with his appearance as a witness during a Congressional hearing on Puerto Rico’s public debt.

Our questions centered mainly upon his recent emergence as a staunch advocate of a unilateral restructuring of Puerto Rico’s debt, a bizarrely anti-lender stance for the head of the  Island’s largest bank.  Among our questions, we asked how Carrion’s bank had avoided the severe exposure to Puerto Rican debt experienced by the Island’s other lenders and citizens, and why Popular – a private sector leader by any definition – has been so reluctant to align with other private sector actors in negotiating a consensual debt solution between Puerto Rico and its lenders.

Needless to say, we found Carrion’s newfound fondness for complete restructuring puzzling.

A closer look at Popular’s financial disclosures, however, reveals the real reason the bank so proudly advocates in support of a super restructuring:  In 2014 and 2015, Popular shed massive amounts of government and public corporation debt that would be subject to a restructuring, enabling it to emerge as an ally for the Garcia Padilla Administration.

In December 2014, Popular was itself a large bondholder, with approximately $337 million of their $811 million (42%) exposure to Puerto Rican debt in public corporations PRASA and PREPA.  Its exposure to General Obligation debt was roughly $82 million, or 14% of its holdings.

Fast forward one year.  Banco has reduced its exposure to debt that would be subject to a restructuring drastically, now holding only $59 million of public corporation debt (10%) and $23 million (4%) of general obligation debt.  The remaining 86% of its exposure is to debt is in the form of loans to municipalities, which are not and never have been part of the restructuring discussion.  It has actually increased its exposure to this “safe” municipality debt by about $20 million over the same time span.

In other words, over the last year, Banco Popular has shed exposure to hundreds of millions in debt that would be subject to La Fortaleza’s scheme, while unsuspecting Puerto Ricans held various debts (PFCs, GOs, PREPA) and lost their hard-earned money.

Herein lies the twist:  Carrion’s timing was impeccable, but it also raises red flags.

In a recent news report, the Washington Free Beacon notes Carrion’s relationship with Antonio Garcia Padilla, the scandal-plagued brother of the governor who is the lone employee of a suspicious island-based non-profit.  That non-profit, of which Carrion is a board member, has received large contributions from Banco Popular and is housed in the bank’s San Juan headquarters.  Was Popular given advanced warning of this plan in exchange for that money?

As if that’s not already bad enough, there’s more.  Popular’s close relationship with the Garcia Padilla administration continues to pay dividends.  Banco stands to generate another $9 million in profit from the government’s recently proposed liquidation of Housing Finance Authority Assets, another windfall for what has already been a profitable financial crisis for the bank.

And what about the rest of the bondholders – those who will be wiped out by an unconstitutional restructuring, and don’t have the luxury of dumping their life savings in exchange for sweetheart deals from the Garcia Padilla administration?

If Popular truly seeks to restructure these debts for the good of Puerto Rico, will it support the same type of unilateral restructuring for other types of loans taken out by regular Puerto Ricans who are Popular customers?  Will Popular allow its own clients to restructure their mortgages and car loans and cease and desist from any and all foreclosure processes against these borrowers?

Call us skeptical.