SOURCE: Doral Financial Corportion

May 15, 2014 07:45 ET

Doral Financial Calls on the Puerto Rico Government to Honor Its Obligations

SAN JUAN, PR--(Marketwired - May 15, 2014) - Doral Financial Corporation (NYSE: DRL) ("Doral", "Doral Financial" or the "Company"), the holding company of Doral Bank, with operations in Puerto Rico and the U.S., today called upon the Government of Puerto Rico, and Puerto Rico Department of Treasury ("Hacienda"), to honor its obligations, as it repeatedly committed to do in communications with the financial community since January of 2013. Contrary to these commitments, on May 14, 2014, Doral received a letter wherein Hacienda unilaterally decided that the 2012 Closing Agreement is null and that Doral has no right to a refund of its overpaid taxes. Doral is evaluating its legal options in connection with this letter and anticipates taking appropriate action to protect its legal rights.

Over the last few weeks, Doral has attempted to provide options to the Government to assist in the repayment of its debt to Doral. Instead, Hacienda has sent a letter claiming that its previous agreement with Doral was now null.

This unilateral action raises serious questions as to whether the Government will make good on its promises and honor its legal agreements. Everyone is aware of the Government's tight fiscal situation. But the way out of it cannot be for the Government to default on its obligations and damage its credibility for generations to come.

Doral's longstanding commitment to Puerto Rico and investment in the community spans more than 30 years. Doral is committed to protecting the interests of all of our stakeholders, including our stockholders, preferred holders, debt holders and more than 1,200 employees serving approximately 300,000 clients, all of whom could be affected by these actions.

Doral noted that the facts related to the 2012 Closing Agreement are very clear:

  • Doral overpaid its taxes and is due a refund from Hacienda.
    As previously announced, on April 15, 2014, Doral received a letter from Hacienda requesting Doral to provide information to demonstrate that Doral made actual tax payments to Hacienda that are the subject of the 2012 Closing Agreement pursuant to which the Government of Puerto Rico agreed to pay back to Doral its tax over-payments. On April 23, 2014, Doral responded to the letter from Hacienda and provided copies of tax payments made during the applicable tax period. Copies of Doral's tax returns and cancelled checks for the tax years in question show that Doral paid $155 million in taxes over this period and would have been due interest on the amount paid at a rate of 6% per year compounded annually from 2000 to present.

  • Hacienda is in direct violation of its previous agreement with Doral.
    The 2012 Closing Agreement expressly provided that it would constitute a violation of the agreement if Hacienda sought to reopen negotiations concerning the tax refund due to Doral. 

  • Doral has honored its agreement with Hacienda on behalf of Puerto Rico.
    Doral has acted in good faith by upholding its end of its agreement with Hacienda to the benefit of the people of Puerto Rico during a difficult economic environment. Under the agreement, Doral expanded its Home Preservation Program by over $100 million allowing Puerto Rico families to restructure or refinance their existing loans and remain in their homes. Furthermore, Doral has modified more than $40 million in commercial loans to local business owners, in addition to its extensive investments in community initiatives. 

As previously announced, Doral is in the process of developing a revised capital plan intended to enable the Company to remain in compliance with the requirements of its regulators. Among other things, this revised plan is intended to address a recent determination by the Federal Deposit Insurance Corporation regarding the treatment of tax receivables from the Government of Puerto Rico.

Doral noted that its customer deposits are FDIC-insured to the fullest extent of the law for up to $250,000 per depositor.

FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of, and subject to the protection of, the Private Securities Litigation Reform Act of 1995. In addition, Doral Financial Corporation may make forward-looking statements in its other press releases, filings with the Securities and Exchange Commission ("SEC") or in other public or shareholder communications and its senior management may make forward-looking statements orally to analysts, investors, the media and others.

These forward-looking statements may relate to the Company's financial condition, results of operations, plans, objectives, future performance and business, including, but not limited to, statements with respect to the adequacy of the allowance for loan and lease losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, the Company's dispute with the Commonwealth of Puerto Rico over its debt to the Company, and the effect of legal proceedings, tax matters, tax legislation and tax rules, compliance and regulatory matters and new accounting standards and guidance on the Company's financial condition and results of operations. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts, but instead represent Doral Financial's current expectations regarding future events. Such forward-looking statements may be generally identified by the use of words or phrases such as "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "believe," "expect," "predict," "forecast," "anticipate," "plan," "outlook," "target," "goal," and similar expressions and future conditional verbs such as "would," "should," "could," "might," "can" or "may" or similar expressions.

Doral Financial cautions readers not to place undue reliance on any of these forward-looking statements since they speak only as of the date made and represent Doral Financial's expectations of future conditions or results and are not guarantees of future performance. The Company does not undertake and specifically disclaims any obligations to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of those statements other than as required by law, including the requirements of applicable securities laws.

Forward-looking statements are, by their nature, subject to risks and uncertainties and changes in circumstances, many of which are beyond Doral Financial's control. Risk factors and uncertainties that could cause the Company's actual results to differ materially from those described in forward-looking statements can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 which is available on the Company's website at www.doralfinancial.com, as updated from time to time in the Company's periodic and other reports filed and to be filed with the SEC.

Institutional Background

Doral Financial Corporation is a bank holding company engaged in banking, mortgage banking and insurance agency activities through its wholly-owned subsidiaries Doral Bank ("Doral Bank"), with operations on the mainland U.S. (New York metropolitan area and northwest region of Florida) and Puerto Rico, Doral Insurance Agency, LLC ("Doral Insurance Agency"), Doral Recovery, Inc. ("Doral Recovery I"), and Doral Properties, Inc. ("Doral Properties"). Doral Bank in turn operates three wholly-owned subsidiaries: Doral Mortgage LLC ("Doral Mortgage"), engaged in residential mortgage lending in Puerto Rico, Doral Money, Inc. ("Doral Money"), engaged in commercial and middle market lending primarily in the New York metropolitan area, and Doral Recovery, LLC ("Doral Recovery II", previously CB, LLC), an entity originally formed to dispose of a real estate project of which Doral Bank took possession during 2005, which now holds commercial loans and certain residential mortgage loans previously held by Doral Bank. Doral Money consolidates three variable interest entities created for the purpose of entering into collateralized loan arrangements with third parties.

Doral Financial Corporation's common shares trade on the New York Stock Exchange under the symbol DRL. Additional information about Doral Financial Corporation may be found on the Company's website at www.doralfinancial.com.