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Process to Purchase a Bank in Puerto Rico

Posted by: Christian Reeves
Category: Puerto Rico

In this post, I’ll outline the process to purchase a bank in the US territory of Puerto Rico. Once you/we have identified a target bank, these are the steps I recommend to ensure the highest probability of winning the bid. While this is the process to purchase a bank in Puerto Rico, the same reasoning and model can be applied to other jurisdictions. 

Please keep in mind that every transaction is competitive. I have a 90% success rate in winning the bid when I go after a bank on behalf of a client. I have achieved this high success rate by a) putting in a great deal of work into the offer, and b) building a strong reputation in Puerto Rico of getting buyers approved by regulators. 

The acquisition of an international bank in Puerto Rico is done in three steps. Here are the steps to purchase a bank in Puerto Rico.

First, to reach an accord with the sellers by negotiating a binding Letter of Intent. 

The second is to prepare, file, and negotiate the Change of Control with regulators. A great deal of effort goes into this application. 

Then, the third step is receiving the Change of Control and transferring the bank to the new owners.  

The remainder of this post will cover steps 1 and 2 as the process to purchase a bank in Puerto Rico. I’ll cover the process of negotiating the change of control after it is filed in a separate post.

Negotiating the LOI: 

A seller will select a buyer for their bank in Puerto Rico based on 1) the price and 2) your probability of being approved by regulators. I have seen banks accept $5m and reject $6m based on the risk or the probability of success associated with a particular buyer. 

I tell you this so you understand why I ask for the following information. I need to convince the seller that your group is the best-qualified and that you will get through regulators quickly and efficiently. 

I ask you to complete a questionnaire as if we were forming a new bank. I need to understand your intended business model, source of funds, and who will be the shareholders, investors, officers, and directors of the bank. I also need to know the citizenship of each shareholder, investor, officers, and director. 

Then we need to agree on the offer and the form of the Letter of Intent. Attached is a sample I have used successfully in the past. Note that this letter is issued by the bank to the buyer. But, I like to use it as a negotiation tool. 

Once I have my questionnaire, the above information, and your comments on the LOI, I can begin working with the seller’s attorney to reach a deal. 

Preparing for the Change of Control of a Bank in Puerto Rico:

The following section deals with the Change of Control process. Therefore, it is only relevant if we’re successful in winning the bid for the bank. Also, I can provide more context and detail upon receipt of my questionnaire. 

The first task after the LOI is signed is to audit the bank. This will uncover any risks, clarify their financial picture, etc. This audit is performed by an independent CPA experienced in these matters.

Next is to obtain a third-party due diligence report on all shareholders, investors, and directors in the purchase group. This report is prepared by Berkeley Research. Once I have my questionnaire and I know the number of shareholders and their respective countries, I can give you more details on the costs and process. 

In addition, each person must complete the Personal History Form. The most challenging component of the form is Section 6(A)(2) Personal Financial Statement. I will need 3 years of audited or reviewed (but not merely compiled) financial statements from each person. I can provide a sample and/or introduce you to a local CPA as necessary. 

Note that 6(A)(5) only applies to residents of Puerto Rico. 

Any US CPA can provide these documents. If the shareholder lives abroad, please note that financial statements must meet GAAP standards and be in USD. It is much easier if your CPA prepares these documents as they understand your financial picture. 

If the bank you are attempting to purchase has an account at the US Federal Reserve, a FedWire account, then you will need audited financial statements rather than reviewed financial statements. 

Finally, if the buyer will be an active corporation, you will need three years of GAAP audited financials for the business AND the individual shareholders. If you form a new corporation to buy the bank, only the individuals need to provide financial statements. 

I hope this article on the process to purchase a bank in Puerto Rico has been informative. Please contact me at info@banklicense.pro if you would like more information on acquiring a bank in Puerto Rico. I will personally handle your case, prepare your documents, and ensure you have the highest probability of winning the bid and being approved by regulators.