Shares for Doral Financial are Likely to Remain Under Pressure Going Forward by BrokerBank Securities, Inc.
NEW YORK, June 9, 2014 /PRNewswire/ -- Doral Financial Corporation (NYSE: DRL) is a bank holding company located in the Commonwealth of Puerto Rico with growing operations in the United States, specifically in the New York City (NYC) metropolitan area as well as in parts of Florida. The company is engaged in retail banking, mortgage banking and insurance agency activities through its wholly-owned subsidiaries, which include Doral Bank, Doral Insurance Agency, Doral Recovery and Doral Properties.
Recently, Fitch Ratings came out with an economic report regarding Puerto Rico's weak fundamentals and ongoing budgetary challenges for the government there, which will likely "weigh on the operating performance and credit profiles of local banks." Overall, unemployment remains high at around 14%, while the local housing market has been restrained by these poor labor market conditions. The government of Puerto Rico continues to see high debt levels (approximately $70 billion) and increasing pension funding requirements. As a result, GDP growth has been, and will continue to be slow -- hurt also by the Commonwealth's credit rating downgrade to junk status by all three of the major credit rating agencies in February 2014. Although the downgrade was not unexpected, it did force some selling in many municipal bond mutual funds that are only allowed to hold investment grade debt in their portfolios.
Despite recent actions by the government to reduce deficits and reform the pension system, Puerto Rico will likely face high interest rates and continued economic weakness going forward. As such, banks in the Commonwealth, including DRL, are expected to continue to face a tough economic environment for the time being.
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SOURCE BrokerBank Securities, Inc.