Small-lender holding company Doral Financial (DRL) saw shares gap up more than 30 percent at one point in Monday trading action after the bank demanded that the cash-strapped Puerto Rican government pay them $230 million “immediately.”.
Doral is searching everywhere for capital, as they struggle to shore up declining reserve capital. Recently, the FDIC informed the bank they could not include tax receivables from the government in its Tier 1 capital. As a result, the bank was downgraded by Moody’s, the S&P, and Fitch Ratings.
The largest US banks must maintain a certain amount of Tier 1 Capital or they risk failing the stress test required of banks following the 2008 financial meltdown. But even small lenders like Doral must maintain sufficient backup capital. If Doral is unable to meet their Tier 1 requirements, they will have 120 days to submit a plan to the FDIC outlining the sale, liquidation, or merger of the bank.
To avoid such a scenario, Doral turned to the PR government, claiming they are owed nearly quarter billion dollars from a 2012 closing deal. In a very strongly worded statement sent to both the Puerto Rico Financial Commission’s Office and the FDIC, CEO Glen Wakeman said that “Doral expects payments to be made immediately.” Wakeman, continued, saying the bank holding company would “exercise all legal remedies available to it to enforce collection and protect the interests of Doral and its stakeholders, including shareholders, depositors, and employees.”
Doral stockholders have been hammered during the bank’s beeline towards insolvency. Shares of Doral are down more than 80 percent from their 52 week high. While it is unclear whether or not the PR government, which is not particularly cash rich, will pay any or all of the money reportedly owed to Doral, the confidence with which Wakeman planned to deal with the situation seemed ot comfort investors.
However, the day’s market activity, even in light of a strongly worded letter to the FDIC from its CEO, raised eyebrows on the broader market. The stock pop and high volume alerted the NYSE, who contacted Doral. Citing company practices, Doral declined to comment.
By 3:45 EST Doral had risen 29.14 percent to hit $3.90 a share. Shares briefly touched $4.50 before retreating before the end of the day’s trading action.
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