Regulatory Situation Worsens for Puerto Rico's Doral

Doral Financial in San Juan, Puerto Rico, is facing a louder call — and a deadline — from regulators to boost capital levels.

The $6.4 billion-asset company disclosed in a regulatory filing Wednesday that the Federal Deposit Insurance Corp. had placed its bank under a prompt corrective action directive, an enforcement order that is often considered one of the last public warnings before regulators move to place the bank into receivership.

The PCA calls for Doral Bank to "promptly" increase its Tier 1 capital to an adequate capitalized level. A leverage ratio of 4% is considered adequately capitalized and the bank's leverage ratio was 2.21% at Sept. 30, the most recent data available from the FDIC.

Alternatively, regulators told the bank that it can sell itself.

Doral Bank has 30 days from Jan. 26 to provide the FDIC with an acceptable revised capital restoration plan. The regulator has ordered the bank twice in the last two months to address deficiencies in its capital plan. The FDIC has objected to the bank's inclusion of a $229 million tax refund from Puerto Rico in its plan based on the agency's belief that the territory is unable to repay the funds.

Doral has been squabbling with the Puerto Rican government over the refund. Although a court has ruled in the company's favor, Puerto Rico has yet to make the payment.

Doral said in its filing that it still believes the payment to be a key part of its capital plan.

"The bank believes the inclusion of the payment obligations from Puerto Rico is appropriate as the bank has a court order validating the obligation," the filing said. Doral "believes its previously submitted capital restoration plan, while not accepted by the FDIC, presents the best possible outcome for all constituencies."

Still, the company acknowledged that, if it is unable to comply, its bank could be at risk of failing.

"If the bank is unable to take prompt action that meets the requirements of the [regulators] with respect to the consent order, the bank may be subject to additional regulatory enforcement actions up to and including the appointment of a receiver or conservator for the bank," the filing said.

The company used a press release to chastise the Puerto Rican government for not following the court ruling.

"The Puerto Rico Government has purposefully chosen to ignore the court's ruling,­ let alone sit down at the negotiating table with Doral Bank to seek a mutually beneficial resolution that is fair and respects over 1,000 employees of Doral," the release said.

Separately, Doral disclosed in its filing that the Federal Home Loan Bank of New York had modified its borrowing terms from 30 days to overnight.

Doral has also been selling assets to reduce risk and boost capital.