Washington/New York : US regulators seized three Puerto Rican banks on Friday and sold their deposits to other banks, costing the Federal Deposit Insurance Corp (FDIC) insurance fund $5.3 billion (Dh19.4 billion) — one of the largest hits in the banking crisis.
The FDIC said regulators had seized the banking operations of EuroBancshares Inc, R&G Financial Corp and W Holding Co in a move that will consolidate the struggling area's financial sector. The FDIC announced other bank failures on Friday, as well.
By seizing and selling the banks' deposits to stronger banks, the FDIC said it saved $3.5 billion over the cost of outright liquidation. A spokeswoman for the FDIC said the agency received 18 bids from five bidders.
Figuring out what to do with the weakest of Puerto Rico's banks was a thorny problem for the FDIC, which expects to sink about $100 billion into shoring up wobbly banks between 2009 and 2013.
Housing boom legacy
An accounting scandal weakened many of the island's biggest banks beginning in 2005, making it difficult for the FDIC to find local buyers strong enough for the assets, people briefed on the matter said. But most buyers from outside Puerto Rico were reluctant to gain exposure to an island with 16 per cent unemployment that has been in recession since 2006.
The three banks being shut down suffered from a surfeit of construction loans, and other bad loans, a legacy of a housing boom on the island in the middle part of the decade.
Oriental Bank and Trust is assuming the deposits of Eurobank, Scotiabank de Puerto Rico is assuming the deposits of R-G Premier Bank of Puerto Rico, and Banco Popular of Puerto Rico is assuming the deposits of Westernbank Puerto Rico, the FDIC said.
