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Operating International Bank in Puerto Rico, USA

Posted by: Christian Reeves
Category: Puerto Rico

There is one international bank (IFE license) in Puerto Rico available for $4 million. It has SWIFT and Fedlink, as well as two correspondent partners. It is fully operational and the shareholders are motivated to sell. It does not have Fedwire or MasterCard or Visa facilities, though it is eligible for them.

A note on Fedwire: International banks in the US territory of Puerto Rico are eligible to open accounts at the US Federal Reserve. Once this account is opened, the Fed becomes your correspondent bank and sends and receives wires on your behalf.

To qualify for Fedwire, a bank must be operating for 12 months and then undergo an audit. Thus, a bank must be operating for a minimum of 1.5 years prior to filing. The international bank available for purchase has been operating for about 3.5 years and is thus eligible to apply for a Fedwire account.

The top offshore banking jurisdiction in the world is the US territory of Puerto Rico. In fact, it is the only jurisdiction that is growing while all others are in decline or have a net loss of banks year over year.

For example, the best-known country for offshore bank licenses is the Cayman Islands. They’ve seen a net loss of bank of about 40% in the last several years. Other countries, such as Belize, Dominica, St. Lucia, St. Vincent, have lost banks.

Even the big guys, like Panama, Luxemburg, and Switzerland, have seen a net loss of banks. While Switzerland and Luxemburg have 2 or 3 new fintech banks setting up, many more are closing than new players coming in.

By comparison, Puerto Rico has about 50 new license applications pending and multiple bidders on any bank that comes up for sale. The US territory is the only offshore banking jurisdiction where we see growth.

The reasons Puerto Rico is so popular right now are:
1. The improved jurisdictional reputation over competitors in the Caribbean,
2. The relative ease of securing correspondent banks compared to competitors,
3. It avoids the high cost of US FATCA by being located in a US territory,
4. The 4% tax rate on the net profits of international banks with no withholding tax when those dividends are paid out to the shareholders or an offshore corporation,
5. The ability to join the US banking system with Fedwire, SWIFT, ACH, MasterCard and Visa, e-commerce acquiring, etc.
6. The fact that US bank holding company rules don’t apply and foreign shareholders are allowed (in fact, they are encouraged).

I’d like to take a minute to comment on how these international banks are being valued in 2020. This is meant to give buyers a rough idea of how lawyers and sellers come up with the prices that they do.

We start with the understanding that there are 50+ applications pending and that a new Permit to Organize an IFE in Puerto Rico is going to take at least 12 months to be approved. Then you will need at least 6 months to build out the bank and apply for a Permit to Operate. This means that the license has a “time to market” value of about $3 million or 18 months minimum.

Then we know it takes another 15 to 18 months to get a full year of operations under your belt and complete an audit so you can apply for Fedwire. Thus, a bank that has been operating for at least 12 months (not counting the audit) will be valued at $4 million.

So, a bank that has been operating for more than a year and is eligible to apply for Fedwire will be worth $4 million. If that same bank has a high-quality correspondent partner or has already received it’s Fedwire account, it will be valued at about $6.5 million. If it’s priced at $4 million, you know it has a low-level correspondent partner.

The values above assume that the bank doesn’t have a significant book of business. That most or all of the accounts will leave and that all outstanding loans will be taken back by the sellers. That the bank will be clean with no clients at the change of control and no negative history.

As stated above, I am aware of one international bank available for about $4 million. I am also working to find additional banks, as these IFEs move quickly. If you would like information on the process, timeline, costs, and the target, please contact me.

I only represent buyers in these transactions. I charge a flat fee with no commission, and thus I am motivated to get buyers the best deal possible. I have completed acquisitions and new licenses in Puerto Rico for clients from all over the world and can assist you to purchase an international bank in the US territory.