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April 3, 2008 |
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DORAL FINANCIAL: S&P Lifts LT Counterparty Credit Rating to B+ Standard & Poor's Ratings Services raised its long-term counterparty credit rating on Doral Financial Corp. to 'B+' from 'B' and removed it from CreditWatch Positive, where it had been placed July 20, 2007. The outlook is stable. "The rating action follows a review of Doral's credit quality, including its capital, liquidity, operating performance, business strategy, and various accounting and regulatory issues," said S&P's credit analyst Robert Hansen. The CreditWatch placement followed Doral's sale of its common stock to Doral Holdings Delaware LLC and repayment in full of US$625 million in senior notes. S&P thinks the company's liquidity and capital position have improved due to the completion of its recapitalization in 2007. Furthermore, the rating agency expects the recapitalization to have a positive effect on the company's reputation among depositors and borrowers, which the agency believes had been tarnished by previous accounting and liquidity issues. However, the rating agency remains very concerned by the significant spike in nonperforming assets within the company's loan portfolio, notably within its construction portfolio. S&P is also concerned about Doral's weaknesses in internal financial reporting controls, as mentioned in its 2007 10-K, which it views negatively in the rating assessment. The counterparty credit rating on Doral Financial reflects its strengthened capital ratios, adequate liquidity, and experienced management team. However, the ratings also incorporate significant credit quality deterioration, low profitability, formidable competition, deficiencies in enterprise risk management, and a challenging economic environment. Specifically, the company reported a net loss of nearly US$171 million in 2007 versus a loss of nearly US$224 million in 2006. Financial results were hurt by a significant increase in its nonperforming assets and an increase in loan-loss provisions. S&P thinks the company is being relatively conservative with its nonperforming loans, which include a significant amount of loans classified as substandard, but not more than 90 days in arrears. While net credit losses to date have been low and manageable, there remains a high degree of uncertainty regarding future loss severities of the nonperforming assets given the weakened local economy. S&P expects operating performance to remain challenged in the near term. The company maintains a weak competitive position in Puerto Rico, despite its long history on the island. The company has a small footprint of branches and has only experienced modest deposit growth in recent years. The business mix is not well diversified, with business lines that focus on commercial and retail banking. In addition, intense competition in Puerto Rico among several formidable competitors has negatively affected margins. Doral Financial has adequate liquidity and is not facing any near-term funding obligations. Specifically, the banks' ratio of loans to deposits declined significantly in recent years as did the bank's reliance on repurchase agreements as a funding source. However, the company remains heavily dependent on brokered deposits. The company has several accounting deficiencies, which S&P views negatively in its rating assessment. Specifically, the company has noted several material weaknesses, including not maintaining effective controls over the reporting process. However, S&P thinks that the company is working hard to remediate these deficiencies and expect substantial progress to be made during the next several quarters. The stable outlook includes S&P's expectation that credit quality will deteriorate further given credit deterioration in its loan portfolio and the weak economic environment. However, the rating agency thinks the bank has sufficient shareholders' capital to absorb a significant increase in loan losses, which the agency expects given the precipitous rise in nonperforming loans. The ratings or outlook could be revised downward if credit quality deteriorates beyond S&P's expectations, a significant amount of loans are purchased, or capital is returned to equity shareholders. Conversely, the ratings or outlook could be revised upward if loan losses prove manageable and if the company is successful in curing accounting deficiencies. Based in New York City, Doral Financial Corp. (NYSE: DRL) -- http://www.doralfinancial.com/ -- is a diversified financial services company engaged in mortgage banking, banking, investment banking activities, institutional securities and insurance agency operations. Its activities are principally conducted in Puerto Rico and in the New York City metropolitan area. Doral is the parent company of Doral Bank, a Puerto Rico based commercial bank; Doral Securities, a Puerto Rico based investment banking and institutional brokerage firm; Doral Insurance Agency Inc. and Doral Bank FSB, a federal savings bank based in New York City. PETROLEOS DE VENEZUELA: Debt Up 449% in 2007, 28.5% of Assets |
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