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Release Date: May 27, 1997


For immediate release

The Federal Reserve Board today announced its approval of the application of Banco Popular de Puerto Rico, Hato Rey, under section 18(c) of the Bank Merger Act and section 9 of the Federal Reserve Act to merge with Roig Commercial Bank, Humacao, both of Puerto Rico, and to establish branches at the current locations of the main office and branches of Roig Commercial Bank.

Attached is the Board's Order relating to this action.


Banco Popular de Puerto Rico
Hato Rey, Puerto Rico

Order Approving the Merger of Banks and Establishment of Bank Branches

Banco Popular de Puerto Rico, Hato Rey ("Banco Popular"), a state member bank, has requested the Board's approval under section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(c)) (the "Bank Merger Act") to merge with Roig Commercial Bank, Humacao ("Roig"), both in Puerto Rico. Banco Popular also has requested the Board's approval under section 9 of the Federal Reserve Act (12 U.S.C. § 321) to establish branches at the current locations of the main office and branches of Roig.1

Notice of the application, affording interested persons an opportunity to submit comments, has been given in accordance with the Bank Merger Act and the Board's Rules of Procedure (12 C.F.R. 262.3(b)). As required by the Bank Merger Act, reports on the competitive effects of the merger were requested from the United States Attorney General, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. The time for filing comments has expired, and the Board has considered the application and all comments received in light of the factors set forth in the Bank Merger Act and section 9 of the Federal Reserve Act.

Banco Popular, with total assets of approximately $14 billion, is the largest commercial banking organization in Puerto Rico, controlling deposits of approximately $8.1 billion, representing 33.8 percent of total deposits in commercial banks in the commonwealth.2 Roig, with total assets of approximately $888 million, is the tenth largest commercial banking organization in Puerto Rico, controlling deposits of approximately $647 million, representing 2.7 percent of total deposits in commercial banks in the commonwealth. On consummation of the proposal, Banco Popular would remain the largest commercial banking organization in Puerto Rico, controlling deposits of approximately $8.8 billion, representing 36.5 percent of total deposits in commercial banks in the commonwealth.

Competitive Considerations
The Bank Merger Act prohibits the Board from approving an application if the proposal would result in a monopoly or if the effect of the proposal may be substantially to lessen competition in any relevant market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.3

Banco Popular and Roig compete directly in the San Juan, Puerto Rico, banking market.4 Banco Popular is the largest depository institution in the market, controlling approximately $6.8 billion of deposits, representing 32.8 percent of total deposits in depository institutions in the market ("market deposits").5 Roig is the eighth largest depository institution in the market, controlling approximately $647 million of deposits, representing 3.1 percent of market deposits.

On consummation of the proposal, Banco Popular would remain the largest depository institution in the San Juan banking market, controlling approximately $7.5 billion of deposits, representing 35.9 percent of market deposits. The Board has carefully reviewed the competitive effects of the proposal in the market in light of all the facts of record, including the number of competitors that would remain in the market, the characteristics of the market, and the projected increase in the concentration of market deposits, as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"). The HHI in the San Juan banking market would increase by 203 points to 1,950.6

Fifteen commercial banks and two thrifts would remain in the market following consummation of the proposal. In addition, more than 71 savings and credit union cooperative societies ("cooperatives") compete in the San Juan banking market, of which 30 have more than $20 million of deposits.7 The Board has previously recognized that cooperatives are significant competitors of commercial banks in Puerto Rico.8 If cooperatives are factored into the calculation of the market indexes, the proposal does not exceed the thresholds in the DOJ Guidelines in the San Juan banking market.9 In addition, the Department of Justice has reviewed the proposal and advised the Board that consummation of the proposal would not be likely to have any significantly adverse competitive effect in the San Juan banking market or in any other relevant banking markets. The Puerto Rico banking commissioner and the other federal banking agencies also have not objected to the proposal.

Based on all the facts of record, and for the reasons discussed in this order, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or the concentration of banking resources in any relevant banking market.

Other Factors
The Bank Merger Act also requires the Board to consider the financial and managerial resources and future prospects of the existing and proposed institutions and the convenience and needs of the community to be served. The Board has carefully considered these factors in light of all the facts of record. The facts of record include supervisory reports of examination assessing the financial and managerial resources of the organizations and their performance under the Community Reinvestment Act, and financial and other information provided by Banco Popular. Based on these and all other facts of record, the Board concludes that all the supervisory factors, and all considerations related to the convenience and needs of the community to be served, are consistent with approval under the Bank Merger Act. The Board also concludes that all the factors that must be considered under the Federal Reserve Act are consistent with approval.

Conclusion
Based on the foregoing and all the facts of record, the Board has determined that this application should be, and hereby is, approved. The Board's approval of the proposal is conditioned on compliance by Banco Popular with all the commitments made in connection with this application. The commitments and conditions referred to in this order shall be deemed to be conditions imposed in writing by the Board in connection with its finding and decision, and, as such, may be enforced in proceedings under applicable law.

The proposed merger shall not be consummated before the fifteenth day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended by the Board or by the Federal Reserve Bank of New York, acting pursuant to delegated authority.

By order of the Board of Governors,10 effective May 27, 1997.

(signed) William W. Wiles

William W. Wiles

Secretary of the Board


Appendix

Branches to be established by Banco Popular de Puerto Rico

(1) Road 2, Km. 11.9 (Service Road), Bayamón
(2) Road 1, Km. 32.9, Caguas
(3) Sixty-fifth Infantry Avenue, Km. 10.2, Carolina
(4) 10 Pedro Márquez Street, Culebra
(5) Garrido Morales and Victoria Streets, Fajardo
(6) 55 Antonio López, Humacao
(7) Carreras & Georgetti Streets, Humacao
(8) 55 Font Martelo Avenue, Centro Comercial, Humacao
(9) Palmanova Condominium, Palmas del Mar, Humacao
(10) Road 3, Km. 81.6, Vista del Rio Plaza, Humacao
(11) Almodovar & Delfaus Streets, Juncos
(12) 63 J.C. Barbosa Street, Las Piedras
(13) 64 San Patricio, Loíza
(14) Road 3, Km. 36.2, Plaza del Oriente, Luquillo
(15) 1 Santiago Iglesias, Maunabo
(16) 19 Juan R. Garzot, Naguabo
(17) Road 3, Km. 22.2, Plaza del Yunque, Rio Grande
(18) Arzuaga & First Streets, San Juan
(19) 1472 Ashford Avenue, San Juan
(20) 355 De Diego Avenue, Stop 22, San Juan
(21) 1500 F.D. Roosevelt Avenue, San Juan
(22) 269 Ponce de León Avenue, San Juan
(23) 1600 Ponce de León Avenue, Stop 23, San Juan
(24) Tetuán & Cruz Streets, San Juan
(25) 1 Degetau Street, Yabucoa


Footnotes

1 The locations of the branches that Banco Popular proposes to establish are listed in the Appendix.

2 Asset and deposit data are as of December 31, 1996.

3 12 U.S.C. § 1828(c)(5)(b).

4 Banco Popular contends that the relevant banking market is the entire island of Puerto Rico. The Board recently considered the proper delineation of banking markets in Puerto Rico, including the San Juan banking market. See Statement by the Board of Governors of the Federal Reserve System Regarding the Application of Banco Santander, S.A., 82 Federal Reserve Bulletin 833 (1996) ("Statement"). For the reasons discussed in the Statement, which are incorporated herein, the Board concludes that the relevant banking market to assess the competitive effects of the proposal is the San Juan banking market. The San Juan banking market consists of the San Juan-Caguas-Arecibo Consolidated Metropolitan Statistical Area and the municipalities of Aibonito, Barranquitas, Ciales, Jayuya, Lares, Maunabo, Orocovis, Quebradillas, Utuado, and Vieques.

5 In this context, market deposits include deposits at commercial banks and savings and loan institutions. Market share data are based on calculations in which the deposits of thrift institutions are included at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

6 Under the revised DOJ Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is more than 1800 is considered highly concentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognizes the competitive effect of limited-purpose lenders and other non-depository financial entities.

7 Deposit data for cooperatives are as of December 31, 1996. Cooperatives with less than $1 million of deposits have not been included in this analysis.

8 For a detailed discussion of the activities of cooperatives, incorporated herein by reference, see BanPonce Corporation, 77 Federal Reserve Bulletin 43, 45 (1991); Statement at 834-835.

9 Based on the asset composition of cooperatives, the Board believes that cooperatives are at least as significant as thrift institutions as competitors of commercial banks, and should be weighted at 50 percent in the San Juan banking market. See Statement at 835 n.13. If deposits of cooperatives are weighted at 50 percent, the HHI for the San Juan banking market would increase by 188 points to 1,613.

10 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors, Kelley, Phillips, and Meyer.

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