Popular, Inc. to Fully Clear TARP Dues - Analyst Blog

Popular, Inc. BPOP has obtained the regulatory approval to repay $935 million to the U.S. Treasury that it had received under the Troubled Asset Relief Program (TARP) during the financial crisis. To repay the dues, Popular will use its internal funds and issue around $400 million debt securities. Issuance of debt securities is, however, subject to market conditions. Popular does not intend to issue any equity for redemption purpose.

Notably, the TARP was set up as a $700-billion federal bailout fund at the height of the 2008 financial crisis. The aim of this program was to stabilize the financial system, restore economic growth and prevent foreclosure. It authorized the U.S. Treasury to purchase troubled companies' assets and equity with the fund. As the economy started to turn around, many financial companies, which were offered assistance through this program, cleared their Treasury dues, either fully or partially. Popular is the latest addition to this repayment bandwagon.

Following the redemption, Popular wants to reclaim the outstanding warrant issued to the U.S. Treasury under the TARP Capital Purchase Program in 2008. The warrant empowers the Treasury to purchase 2,093,284 common shares of Popular at an exercise price of $67 per share for a decade. However, both redemption of capital securities and repurchase of warrant are subject to the authorization of the U.S. Treasury.

Once the TARP obligation is settled, we expect Popular to deploy more capital in the form of dividend hike and share repurchase, which will restore investors' confidence in the stock.

Currently, Popular carries a Zacks Rank #3 (Hold). Some better-ranked southeast banks include Capital City Bank Group Inc. CCBG, Middleburg Financial Corporation MBRG and Midsouth Bancorp Inc. MSL. All these stocks sport a Zacks Rank #1 (Strong Buy).

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