As of December 2019, there are two international banks for sale in the US territory of Puerto Rico. If you’re planning on setting up an offshore bank in 2020, you should take a hard look at Puerto Rico. Here’s everything you need to know about purchasing a bank in Puerto Rico.
Puerto Rico was the hottest international banking jurisdiction in 2019 and competition is fierce. Considering there are over 60 applications pending for new licenses, acquiring a fully operational bank is the most efficient path forward. If time to market is a consideration, the only option is to buy your way in.
The typical cost of a fully operational bank with staff, offices, systems, and correspondent banks or a FedWire account is $3.25 million to $5.5 million. The largest sale in Puerto Rico was $10 million, but that included a book of business.
Most banks sold in 2019 had no book of business and no significant assets or liabilities. So, the range of $3.25 to $5 million is an operating bank with no significant deposits. The main factor differentiating sellers will be the quality of their correspondent partner(s) and whether they have a FedWire account.
If we assume a $4 million purchase price, a buyer will need about $6 million in cash to close. $4 million is net to seller and you should be bringing in about $2 million to capitalize the bank. The seller will take back any capital they have and regulators are usually looking for a minimum of $2 million in tier 1 capital.
However, the amount of capital required will depend on your business model. For more information, see Capital Requirements for an International Bank in Puerto Rico. If you’ll make loans or hold volatile assets on your books, capital is a complex topic. If you’ll operate a transactional bank, capital is straightforward.
The steps to acquire an international bank in Puerto Rico are as follows:
1) Draft the business and compliance plans.
2) Build your board of directors.
3) Open negotiations with the seller.
4) Sign an LOI and place funds in escrow to lock up the sale.
5) Audit the bank and its books.
6) Reach a final agreement with the seller.
7) Place the balance of the purchase price in escrow.
8) Submit a completed application for Change of Control to the banking commission.
9) Meet with regulators to present your business plan, vision, and team.
10) Negotiate license terms with the Commissioner.
11) Receive the Change of Control permit from regulators.
12) Funds are released from escrow and the deal closes.
The seller will select a buyer based on 1) the purchase price, 2) the ease of which the buyer is expected to pass compliance, and 3) the speed at which the buyer can close. So, preparing a complete package is nearly as important as the amount offered. The citizenship of the buyers will be a factor in assessing the group’s ability to pass compliance.
Everyone in the buyer’s group will need to pass compliance. This will include a detailed background check by a 3rd party such as Berkely Research. So, all shareholders, investors, officers, directors, and key persons will need to pass compliance and every dollar going into the bank will need to be accounted for. For details, see Due Diligence Requirements for an International Bank in Puerto Rico.
For more on what’s required to be in the business plan, see Business Plan for an Offshore Bank License.
For information on starting a new bank in Puerto Rico, see Start a Bank in Puerto Rico in 10 Steps. The process of starting a new bank is nearly identical to that of purchasing an existing bank. The major difference is that the acquisition process is very condensed and may be completed in 30 to 60 days compared to 12+ months for a de novo bank.
Keep in mind that banks in Puerto Rico must have a minimum of 4 employees on the island. Therefore, you’ll be taking over some or all of the staff of the target. For information on operating costs, see Sample Operating Expenses for an Offshore Bank in Puerto Rico.
We’ve been in the industry since 2003 and have the experience necessary to win the bid and get through compliance efficiently. We only represent buyers and charge a flat fee. No commissions and thus we’re incentivized to negotiate the lowest price possible. Fees are paid half upfront and half upon completion, so based on success.
If you’re interested in acquiring a bank in Puerto Rico, please contact me directly at firstname.lastname@example.org. I will personally prepare your package and negotiate with the seller and the seller’s council. See our download page for the forms necessary to get started.