Doral Financial in Puerto Rico Is Shut Down by Regulators
Doral Financial, the troubled Puerto Rico bank that was once a darling of Wall Street before becoming known as a political pariah on the island, has been shut down by banking regulators.
The Federal Deposit Insurance Corporation expects to lose about $748.9 million from Doral’s collapse, making it the most costly bank failure since April 2010, when another Puerto Rican bank collapsed.
The collapse of Doral, which had experienced eight consecutive years of losses and has been ensnared in a murder investigation into the shooting of a top bank executive, seemed all but inevitable.
Still, the takeover of the bank on Friday afternoon was marred by the F.D.I.C.’s early release of an emailed announcement that the bank had been closed. The email was sent more than an hour before many of the bank’s branches had closed and while Doral’s stock was still trading on the New York Stock Exchange.
Immediately after the release, Doral’s shares, which had already been battered in recent months, tumbled more than 46 percent, though it appeared not to rattle customers at the bank’s main headquarters in San Juan.
Photo
A Doral A.T.M. in San Juan. The F.D.I.C. said it would lose $748.9 million from the collapse. Credit Dennis Rivera for The New York Times
An F.D.I.C. spokeswoman said the email had been sent to reporters “in error,” but declined to say why it happened.
“We will review our process to avoid a repetition of this problem,” said the spokeswoman, Barbara Hagenbaugh.
Founded in 1972, Doral and its executives were often viewed as outsiders in Puerto Rico’s bank circles. Doral carved out a niche as a mortgage lender, but a deep recession on the island dashed the bank’s lending aspirations and profits.
Hoping to improve its fortunes, the bank recruited Glen R. Wakeman, the head of General Electric’s finance unit in Latin America, to become chief executive. It also received an infusion of capital from a group of Wall Street investors — including Goldman Sachs and the hedge funds Perry Capital and Marathon Asset Management.
But Doral suffered a big blow in June 2011, when one of its top new bankers, Maurice Spagnoletti, an experienced community and regional banker from the mainland, was gunned down on a San Juan highway in what police say was a well-planned execution.
The Federal Bureau of Investigation is still investigating the killing, which happened while Mr. Spagnoletti was driving through rush hour traffic.
Friends and relatives of Mr. Spagnoletti described the 57-year-old banker as a stickler for the rules who was not afraid to expose improper behavior.
And over the years, Doral has dealt with its share of questionable behavior by bank employees.
Just last week, a former Doral employee was indicted in federal court on charges that she bilked the bank out of as much as $2.3 million by altering the terms of a contract for cleaning services at the bank.
The former employee, Annelise Figueroa, according to the federal prosecutors, changed the contract terms so that instead of receiving a $27,350 monthly fee, the company was paid $27,288 every week.
Prosecutors said Ms. Figueroa had a personal relationship with an executive at the cleaning company and pressured Doral’s accounting department to issue the checks.
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Ms. Figueroa has pleaded not guilty to the charges. Her lawyer declined to comment on her case.
An F.B.I. spokesman said Ms. Figueroa’s arrest on fraud and money laundering charges was not related to the investigation of the killing of Mr. Spagnoletti.
What appeared to seal Doral’s fate was its legal battle with the government of Puerto Rico.
The bank’s executives had been counting on a roughly $230 million tax refund from the Puerto Rico government as a significant source of capital. Commonwealth officials said the deal was not valid.
Doral hired lawyers from Washington to battle the commonwealth in court, while also waging a public-relations campaign that criticized Puerto Rico officials for being untrustworthy.
The bank’s criticism angered the government at the highest levels. It came as Puerto Rico was trying desperately to preserve the trust of investors and maintain access to the municipal bond market.
Doral, however, suffered a major blow on Wednesday when a Puerto Rico appeals court ruled that the tax refund was void.
Faced with repeated warnings from regulators that the bank didn’t have enough capital, Doral sold off assets in recent months, but those sales fell short of saving the bank from collapse.
On Friday afternoon, federal banking officials fanned out across Doral’s offices in Puerto Rico, Florida and New York and began transferring $4.1 billion of customer deposits to Banco Popular. The branches were expected to open to customers as usual on Saturday morning.
Banco Popular will assume all of Doral’s deposits. It then plans to transfer some to a group of other banks, including FirstBank of Puerto Rico.
The F.D.I.C. said Doral customers would not suffer any losses in the handover of their deposits. Banco Popular also agreed to purchase $3.25 billion of Doral Bank’s assets.
Doral becomes the fourth United States bank to fail this year. It is the most costly failure since Western Bank, which was also based in Puerto Rico and collapsed in 2010 at a cost of $3.8 billion.
It is not clear what will happen to Mr. Wakeman, Doral’s chief executive, who was one of the highest-paid executives of a Puerto Rico bank, though he had relocated his offices to Miami from San Juan.
“Personnel matters are up to the acquiring institution,” the F.D.I.C. spokeswoman said in an email.
An official from the Federal Deposit Insurance Corporation spoke to workers at a Doral Financial branch on Friday in San Juan. Credit Dennis Rivera for The New York Times Doral Financial in Puerto Rico Is Shut Down by Regulators
The Federal Deposit Insurance Corporation expects to lose about $748.9 million from Doral’s collapse, making it the most costly bank failure since April 2010, when another Puerto Rican bank collapsed.
The collapse of Doral, which had experienced eight consecutive years of losses and has been ensnared in a murder investigation into the shooting of a top bank executive, seemed all but inevitable.
Still, the takeover of the bank on Friday afternoon was marred by the F.D.I.C.’s early release of an emailed announcement that the bank had been closed. The email was sent more than an hour before many of the bank’s branches had closed and while Doral’s stock was still trading on the New York Stock Exchange.
Immediately after the release, Doral’s shares, which had already been battered in recent months, tumbled more than 46 percent, though it appeared not to rattle customers at the bank’s main headquarters in San Juan.
Photo
A Doral A.T.M. in San Juan. The F.D.I.C. said it would lose $748.9 million from the collapse. Credit Dennis Rivera for The New York Times
An F.D.I.C. spokeswoman said the email had been sent to reporters “in error,” but declined to say why it happened.
“We will review our process to avoid a repetition of this problem,” said the spokeswoman, Barbara Hagenbaugh.
Founded in 1972, Doral and its executives were often viewed as outsiders in Puerto Rico’s bank circles. Doral carved out a niche as a mortgage lender, but a deep recession on the island dashed the bank’s lending aspirations and profits.
Hoping to improve its fortunes, the bank recruited Glen R. Wakeman, the head of General Electric’s finance unit in Latin America, to become chief executive. It also received an infusion of capital from a group of Wall Street investors — including Goldman Sachs and the hedge funds Perry Capital and Marathon Asset Management.
But Doral suffered a big blow in June 2011, when one of its top new bankers, Maurice Spagnoletti, an experienced community and regional banker from the mainland, was gunned down on a San Juan highway in what police say was a well-planned execution.
The Federal Bureau of Investigation is still investigating the killing, which happened while Mr. Spagnoletti was driving through rush hour traffic.
Friends and relatives of Mr. Spagnoletti described the 57-year-old banker as a stickler for the rules who was not afraid to expose improper behavior.
And over the years, Doral has dealt with its share of questionable behavior by bank employees.
Just last week, a former Doral employee was indicted in federal court on charges that she bilked the bank out of as much as $2.3 million by altering the terms of a contract for cleaning services at the bank.
The former employee, Annelise Figueroa, according to the federal prosecutors, changed the contract terms so that instead of receiving a $27,350 monthly fee, the company was paid $27,288 every week.
Prosecutors said Ms. Figueroa had a personal relationship with an executive at the cleaning company and pressured Doral’s accounting department to issue the checks.
Continue reading the main storyContinue reading the main storyContinue reading the main story
Ms. Figueroa has pleaded not guilty to the charges. Her lawyer declined to comment on her case.
An F.B.I. spokesman said Ms. Figueroa’s arrest on fraud and money laundering charges was not related to the investigation of the killing of Mr. Spagnoletti.
What appeared to seal Doral’s fate was its legal battle with the government of Puerto Rico.
The bank’s executives had been counting on a roughly $230 million tax refund from the Puerto Rico government as a significant source of capital. Commonwealth officials said the deal was not valid.
Doral hired lawyers from Washington to battle the commonwealth in court, while also waging a public-relations campaign that criticized Puerto Rico officials for being untrustworthy.
The bank’s criticism angered the government at the highest levels. It came as Puerto Rico was trying desperately to preserve the trust of investors and maintain access to the municipal bond market.
Doral, however, suffered a major blow on Wednesday when a Puerto Rico appeals court ruled that the tax refund was void.
Faced with repeated warnings from regulators that the bank didn’t have enough capital, Doral sold off assets in recent months, but those sales fell short of saving the bank from collapse.
On Friday afternoon, federal banking officials fanned out across Doral’s offices in Puerto Rico, Florida and New York and began transferring $4.1 billion of customer deposits to Banco Popular. The branches were expected to open to customers as usual on Saturday morning.
Banco Popular will assume all of Doral’s deposits. It then plans to transfer some to a group of other banks, including FirstBank of Puerto Rico.
The F.D.I.C. said Doral customers would not suffer any losses in the handover of their deposits. Banco Popular also agreed to purchase $3.25 billion of Doral Bank’s assets.
Doral becomes the fourth United States bank to fail this year. It is the most costly failure since Western Bank, which was also based in Puerto Rico and collapsed in 2010 at a cost of $3.8 billion.
It is not clear what will happen to Mr. Wakeman, Doral’s chief executive, who was one of the highest-paid executives of a Puerto Rico bank, though he had relocated his offices to Miami from San Juan.
“Personnel matters are up to the acquiring institution,” the F.D.I.C. spokeswoman said in an email.
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