- Filing of certain prospectuses and communications in connection with business combination transactions (425)
July 08 2009 - 5:11PM
Edgar (US Regulatory)
Filed by Popular, Inc.
Pursuant to Rule 425
Under the Securities Act of 1933
Subject Company: Popular, Inc.
Commission File No.: 000-13818
Exchange Offer Presentation
July 8, 2009
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Forward Looking Statements
Statements contained in this Presentation that are not based on current
or historical fact are forward-looking in nature. Such forward-looking
statements are based on current plans, estimates and expectations.
Forward-looking statements are based on known and unknown risks,
assumptions, uncertainties and other factors. The Company's actual
results, performance, or achievements may differ materially from any
future results, performance, or achievements expressed or implied by
such forward-looking statements.
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Agenda
Current Situation
Exchange Offer Overview
Popular, Inc. Business Discussion
Closing Remarks
Q&A
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Current Situation & Exchange Offer Overview
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Popular, Inc. Exchange Offer
Purpose of exchange offer
To increase Popular, Inc.'s common equity by up to $1.1 billion
How does the exchange offer
work?
Investors:
Preferred Stock
TRUPS
On June 29th, we launched the exchange offer. Current
investors in the Corporation's preferred stock and trust
preferred securities are being offered the opportunity to
exchange those securities for common shares in the Company.
Popular, Inc.
Securities Tendered
Common Shares
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Developments Leading to Exchange Offer
Deteriorating U.S. & P.R. Economies
Economic environment has deteriorated
sharply since 2007
U.S. recession on pace to be longest since
Great Depression (Q1 2009 marked 16 months)
Unemployment at 9.5%, 26-year high
Massive correction in home values
Widespread credit deterioration
Puerto Rico recession longest on record
Unemployment rate of 14.4%
Further distress in manufacturing and commercial sector
Oil-dependent economy
Expected government layoffs to have a major impact
Construction sector under substantial stress
10-City Index
20-City Index
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Developments Leading to Exchange Offer-
Changing Regulatory Expectations Regarding Capital
Ten of the largest 19 banks were required by the Supervisory Capital Assessment Program (stress
tests) to bolster their capital buffers by a combined $75 billion in additional common equity
The objective of the stress tests was to verify the pro-forma level of common equity the banks
would have by the end of 2010, under a stress economic environment
The regulators are focused on a new, minimum level of common equity that the banks need to
maintain: Tier 1 Common / Risk-Weighted Assets Ratio of 4.0%
2
1
1
Announced purchase of Merrill Lynch in Sept. 2008
2
Announced purchase of Wachovia in Oct. 2008
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Developments Leading to Exchange Offer-
Popular Capital Assessment
Even though Popular was not one of the top 19 banking institutions included in the SCAP, we have
closely assessed the announced SCAP results, particularly noting that:
SCAP credit loss assumptions are based on a more adverse economic and credit scenario
Federal banking regulators are focused on the composition of regulatory capital
Although the SCAP results are not applicable to us, they do express general regulatory expectations.
While Popular is well capitalized based on a ratio of Tier 1 Capital to risk weighted assets of 11.16% as
of March 31, 2009, we believe that an improvement in the composition of our regulatory capital will
better position us in the event of a more adverse economic and credit scenario
As a result, we are conducting the Exchange Offer in order to increase our common equity capital to
accommodate the more adverse economic and credit scenarios assumed under the SCAP as applied to
regional banking institutions and have structured the Exchange Offer to increase our Tier 1 common
equity by up to approximately $1.1 billion
1 See our preliminary prospectus dated June 29, 2009 for a
reconciliation of Tier 1 common to common stockholders' equity.
1
Pro Forma Capital Ratios Post Exchange
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Overview of Exchange Transaction
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Exchange Offer Summary
We have launched an offer to exchange our trust preferred securities (TRUPS) and
preferred stock, which amount to $1.4 billion, for up to 390 million shares of our
common stock
* The closing sale price for our Common Stock on the Nasdaq Stock Market on July 7, 2009 was $1.68 per share, which is less than the Minimum
Share Price. If the VWAP is less than the Minimum Share Price, we will use the Minimum Share Price and not the VWAP to calculate the number of
shares of our Common Stock tendering holders will receive. In that case you will receive shares of our Common Stock with a value that may be
significantly less than the value of the shares you would receive in the absence of that limitation.
Lead: UBS Investment Bank, Popular Securities Co-Lead: Citi
Dealer Managers
Expiration Date
Based on average volume weighted average price (VWAP) for the 5-day period of July 20-24,
ending on 2nd day preceding the expiration date of July 28 with Minimum Share Price of $2.50*
Common Stock
Pricing
Series A Preferred Stock
Series B Preferred Stock
BanPonce Trust I TRUPS
PNA Capital Trust I TRUPS
Capital Trust I TRUPS
Capital Trust II TRUPS
Targeted
Securities
Up to $1.1 billion based on the High Participation scenario
Exchange Size
Popular, Inc (NASDAQ:BPOP)
Issuer
Security
Par Value
$25
$25
$1,000
$1,000
$25
$25
80%
80%
80%
80%
100%
100%
The exchange offer will expire on July 28, 2009
$186
$400
$144
$250
$300
$130
Outstanding
(in millions)
Proration
Only TRUPS Popular Capital Trust I & II will be subject to proration based on the acceptance
priority levels noted above and a maximum of 390 million common shares issuable
Exchange Value
Offered
BPOPO
BPOPP
Not listed
Not listed
BPOPN
BPOPM
Ticker
Coupon
6.375%
8.250%
8.327%
6.564%
6.700%
6.125%
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Recent Trading Levels - Preferred & TRUPS vs. Exchange Value Offered
Market prices for the preferred stock and trust preferred securities have decreased significantly in
recent months.
TRUPS Market Price
Source: Bloomberg
Exchange value of 67.2% offered to 6.70% Popular Capital Trust I & 6.125% Popular Capital Trust II, based on the
July 7 common share closing price of $1.68
Exchange value of 53.8% offered to 8.327% BanPonce Trust I and 6.564% Popular N.A. Capital Trust I, based on
the July 7 common share closing price of $1.68
Exchange value of 53.8% offered to Preferred Stock Series A & B, based on the July 7 common share closing price
of $1.68
Preferred Stock Market Price
Exchange Value
on July 7 1
Exchange Value
on July 7 3
Exchange Value
on July 7 2
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Exchange Offer Timeline
6/8
6/8
Announce
exchange
and file
preliminary S-4
6/29
6/29
Launch
exchange offer
7/28
7/28
Exchange
offer expires
7/31
Exchange
settlement
7/31
Note: All future dates are subject to change
7/20
VWAP
Averaging
Period begins
7/20
7/24
7/24
VWAP
Averaging
Period ends
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Popular, Inc. Business Discussion
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Q3 08 Q4 08 Q1 09
BPPR 35394 12421 179810
Q3 08 Q4 08 Q1 09
BPNA -139043 -349503 -213476
Q3 08 Q4 08 Q1 09
Popular Inc -211173 -702900 -42576
We have adapted strategy to the changing business
environment:
Integration of U.S. banking business under one single
management
Consolidation of U.S. bank footprint, concentrating
resources among high-performing branches
U.S. branch network entails reduction of aprox. 40
branches
U.S. headcount reduced by 27% from Q1 2008 to Q1
2009
Continuing focus on managing asset quality, collections
and efficiency
Popular, Inc. total core deposits amounted to $20 billion
Strengthening the P.R. franchise
Purchase of Citibank operations in P.R., R-G Financial
mortgage servicing portfolio
Recent Financial Events:
Recent losses have been driven primarily by credit costs
in the U.S. business and the costs of unwinding
discontinued U.S. businesses
The credit environment is expected to be difficult for
the next few quarters
Common equity will be increased substantially with the
successful completion of the exchange offer underway
Popular, Inc. Business Update
Excl. extraordinary gains
1)
1) Includes net extraordinary gain of $ 155 million
1)
(In thousands)
(In thousands)
(In thousands)
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Credit Cost Trends
The main driver pressuring our profitability is rising credit costs from several
segments of the portfolio. The provision for loan losses in Q1 2009 amounted to
$372.5 million, an annualized 5.8% of average loans held in portfolio. (In 2005,
provision for loan losses amounted to $121.9 million, 0.57% of average loans held in
portfolio)
In the P.R. business, credit costs of the consumer and construction portfolios have
been rising; with the deterioration of the construction portfolio becoming more
acute, starting in the second half of 2008
At the U.S. business, the primary pockets of credit weakness are in the consumer
and mortgage loan portfolios
Continued adverse changes in the economy and negative trends in employment
and property values in the markets in which we operate have continued to have an
adverse affect on our provision for loan losses for Q2 2009 and we expect to incur a
net loss for the quarter comparable to the net loss we incurred in Q1 2009 after
excluding gains on sale of investment securities in each period. We will continue to
evaluate our allowance for loan losses and may be required to increase such
amounts, perhaps substantially.
We have been provisioning in excess of the amounts that have been actually
charged off, accumulating loans loss reserves
1 FDIC-regulated banks in the U.S. reported a total loan loss provision of $x in Q1 2009, %X of total
loans. In Q1 2005, FDIC-regulated banks reported a loan loss provision of $x, X% of total loans.
1 FDIC-regulated banks in the U.S. reported a total loan loss provision of $x in Q1 2009, %X of total
loans. In Q1 2005, FDIC-regulated banks reported a loan loss provision of $x, X% of total loans.
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Credit Cost Mitigation Initiatives
Exited subprime mortgage lending in U.S. and non-core businesses, sold
subprime and leasing portfolios and shut down the E-LOAN and HELOC
origination channels
A non-conventional mortgage loan modification program in the U.S. is
underway:
As of Q1 2009, $110 million had been modified
Consolidated P.R. consumer-finance operations into retail business, stopped
origination of consumer-finance loans
Substantial resources have been reallocated to manage the collections effort
related to the P.R. commercial & construction loan portfolios
Several efforts are underway to mitigate credit losses
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Recap
The impact of the economic environment on credit quality has put
pressure on profitability and capital
Multiple measures have been implemented to address challenges in
the credit quality of our loan portfolios
The increase in common equity expected from the successful
completion of the exchange offer should better position us for a
difficult environment
The U.S. Congressional Budget Office forecasts real GDP growth of
0.4% and 3.8% for fiscal years 2010 and 2011, respectively. The P.R.
Planning Board forecasts real GDP growth of 0.1% and 0.9% for fiscal
years 2010 and 2011, respectively.
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Notice
In connection with the exchange offers, Popular, Inc. has filed a Registration Statement on Form S-4 that contains a
prospectus and related exchange offer materials with the Securities and Exchange Commission (the "SEC") on June
29, 2009. This registration statement has not yet become effective. Popular, Inc. has made available a preliminary
prospectus, and will make available a final prospectus, to the holders of shares of Preferred Stock and Trust Preferred
Securities that may be eligible to participate in the exchange offer. Holders of these series of preferred stock and
Trust Preferred Securities are urged to read the prospectus and related exchange offer materials because they
contain important information.
In connection with the consent solicitation from holders of Preferred Stock for the issuance of new shares to the
holder our shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series C, Popular, Inc. has filed a definitive
consent solicitation statement with the SEC. The definitive consent solicitation statement and instructions for giving a
consent have been made available to holders of shares of Preferred Stock of Popular, Inc. Investors and security
holders of Popular, Inc. are urged to read the consent solicitation statements and other relevant materials because
they contain important information.
Popular, Inc. and its directors and executive officers and other persons may be deemed to be participants in the
consent solicitation, as described in the prospectus. Information regarding Popular, Inc. directors and executive
officers is available in its Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with
the SEC on March 2, 2009, and its definitive proxy statement for its 2009 annual meeting of shareholders, which was
filed with the SEC on March 13, 2009. The prospectus and consent solicitation statement contain additional
information regarding the participants in the consent solicitations and a description of their direct and indirect
interests, by security holdings or otherwise.
This presentation contains forward looking statements. The following factors among others could cause the results of
the exchange offer to differ materially: the rate of declining growth in the economy and employment levels, as well as
general business and economic conditions; changes in interest rates, as well as the magnitude of such changes; the
fiscal and monetary policies of the federal government and its agencies; changes in federal bank regulatory and
supervisory policies, including required levels of capital; the relative strength or weakness of the consumer and
commercial credit sectors and of the real estate markets in Puerto Rico and the other markets in which borrowers are
located; the performance of the stock and bond markets; competition in the financial services industry; possible
legislative, tax or regulatory changes; and difficulties in combining the operations of acquired entities.
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Exchange Offer Presentation
July 1, 2009
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