BPOP - Raging Capital Delivers Letter to Popular Inc. Board of Directors

ROCKY HILL, N.J., Dec. 9, 2019 /PRNewswire/ -- Raging Capital Management, LLC, a long-term shareholder of Popular, Inc. (NASDAQ: BPOP) (the "Company"), today announced that it has delivered a letter to the Board of Directors of the Company.

The full text of the letter follows:

December 6, 2019

Popular, Inc.
Board of Directors (751)
P.O. Box 362708
San Juan, PR 00936-2708

Ladies and Gentlemen,

Raging Capital Management, LLC is a long-term shareholder of Popular, Inc. ("BPOP" or the "Company") and currently owns approximately 700,000 shares of common stock of the Company.  We believe BPOP is significantly undervalued and we call upon you, in your capacities as directors of the Company (the "Board") and fiduciaries of all shareholders, to take timely and aggressive action to unlock shareholder value.

Specifically, we call upon the Board to:

• Adopt a $1 billion stock repurchase plan (representing ~20% of the float), at a minimum, to be executed over the next two years; and
• Double the current dividend payout ratio.

These two steps would materially boost BPOP's annual earnings power to over $8 per share and return on equity to more than 15%.  Even in this conservative scenario, BPOP would remain one of the most overcapitalized banks in North America with a ~14% CET1 ratio and minimal change to the Company's financial flexibility or significant, ongoing earnings power.

We also call upon the Board to engage a nationally-recognized investment banking firm to explore all strategic alternatives.  The investment banking firm should be specifically instructed to investigate, among other things, the following potential alternatives:

• Spin-off to shareholders of BPOP's 16% stake (~$360 million in market value) in EVERTEC, Inc., a publicly traded NASDAQ company;
• Spin-off and/or stock-based merger of Popular Bank, BPOP's mainland U.S. subsidiary, which operates in attractive markets and accounts for roughly 26% of the Company's loan exposure; and
• Sale of the entire Company – we believe any reputable investment banking firm retained by BPOP could realistically determine that the value of the Company would be best maximized through its acquisition by a larger, more diversified banking organization.

Let's dig in a little deeper.  We believe BPOP is one of the most undervalued banks in North America:

At the same time, we believe BPOP is also one of the most overcapitalized banks in North America:

* Comprised of 18 mainland peer banks listed by Piper Jaffray, the primary U.S. bank covering BPOP, in a recent research report. 

** This is the regulatory minimum to be considered "well-capitalized" by the Federal Reserve Board. 

We believe many investors would attribute this enormous valuation discount as a function of BPOP's exposure to Puerto Rico.  However, by most meaningful measures, Puerto Rico's economy has significantly improved since Hurricane Maria and island GDP is forecast to grow 2.4% in 2019.  As rebuilding continues, and more than $80 billion of government stimulus money is increasingly disbursed, many expect the economy to further strengthen over the next several years.  New Opportunity Zone tax benefits are also attracting fresh investments.

On top of these favorable tailwinds, the Puerto Rico Fiscal Agency and Financial Advisory Authority recently reported that Puerto Rico's government is sitting on over $16.5 billion of cash and it appears that the island is in the home stretch of completing its debt restructuring.  Once this is completed, we expect a wave of new spending and investment to be unleashed.  The future appears to be increasingly bright in Puerto Rico, leading all three of the largest Puerto Rico-based banks to state that credit quality on the island has improved and this positive trend is expected to continue.   

In addition, as you well know, BPOP's underwriting and reserve policies have proven conservative.  The allowance for loan losses – currently 1.90% of total loans – has averaged 2.60% of loans during the past six years, an exceptionally challenging period for the local economy that has seen major hurricanes, ongoing government debt default and restructuring, and a lengthy recession.  Moreover, according to a recent research report, implementation of the Current Expected Credit Losses (CECL) accounting standard suggests that further loan loss provisioning for BPOP should decline in the future, perhaps materially.  We also note that 11% of BPOP's profits come from its U.S. mainland bank which, itself, is a very valuable franchise.

Implementing our proposed buyback program and enhancing the dividend payout ratio would be a good first step to confirm that you are serious about unlocking shareholder value.  Next, you should hire a nationally recognized investment bank to explore strategic alternatives.  We estimate that a more appropriately capitalized BPOP would be valued more in-line with its mainland peers and be worth around $90 per share in the public markets, and perhaps more in various spin-off and/or sale scenarios.

The time is now for the Board to be more aggressive.  Even Wells Fargo, which is dogged by all sorts of regulatory scrutiny, has been able to buy back shares valued at 100% and 112% of the company's earnings for 2018 and the first 9 months of 2019, respectively.  There is no good reason for BPOP to be both as overcapitalized and undervalued as it is today.  We call upon the Board to act with urgency and aggressive action.

We would be happy to discuss our views in further detail with the members of the Board.  We look forward to hearing from you. 

Sincerely,

William C. Martin
Chairman and Chief Investment Officer
Raging Capital Management, LLC

Investor Contact:
William C. Martin
Raging Capital Management, LLC
(609) 357-1870

SOURCE Raging Capital Management, LLC