Latin CEO / September 2001
By Larry Luxner
Richard L. Carrión Jr. has a reputation for making big decisions. In July 1989, after six months on the job as CEO of Banco Popular de Puerto Rico – the island’s biggest bank – Carrión proposed the largest corporate merger in Puerto Rico’s history: BPPR would acquire BanPonce Corp., owner of No. 2-ranked Banco de Ponce, for US$278.2 million. The aim: Create a local “superbank” that would be able to compete against US, Canadian and Spanish giants that controlled 56 percent of the island’s bank assets.
The controversial takeover, opposed by critics who thought it would reduce competition, won final approval in December 1990, and brought BPPR’s total assets to US$9 billion. The deal also boosted the bank’s payroll from 5,200 to more than 7,000 employees and gave the new entity a 30 percent market share. More importantly, it cemented Carrión’s renown as a risk-taker whose initiatives, ranging from the installation of automatic-teller machines (ATMs) in remote mountain villages to joint ventures in Central America, have paid off handsomely for BPPR and its stockholders.
Today, Banco Popular is by far the leading financial institution anywhere in the Caribbean, with US$27.3 billion of assets as of March 31. That total exceeds the combined deposits of the next three largest institutions – Banco Santander de Puerto Rico, FirstBank and Doral Financial Corp. – all of whose headquarters are clearly visible from Carrión’s spacious seventh-floor office in Hato Rey, the heart of San Juan’s financial district.
Obviously, we play a very large role in Puerto Rico,” says Carrión, 48. “We really have to cover all the bases, and be all things to all people, from a very small account in Barrio Obrero [a poor, working-class neighborhood in San Juan] to the requirements of a large multinational.”
Being so intimately linked to the island has its advantages as well as drawbacks. In general terms, as the US economy goes, so goes Puerto Rico, and hence Banco Popular. Or, at least, one would suppose. Yet Popular Inc., the bank’s holding company, saw its net income rise 15.7 percent during first quarter 2001 compared to the same quarter the year prior, from US$64.2 million to US$74.2 million. (For all of 2000, Popular Inc. reported US$276 million in net income, a return on equity of 15 percent.) And, despite volatility in the stock markets, Popular’s market capitalization as of March 31 stood at US$4 billion, up from US$3 billion a year earlier. According to SLN Securities, Banco Popular now ranks No. 35 in asset size among all US financial institutions.
One reason that Banco Popular and its holding company have continued to grow, despite high unemployment in Puerto Rico, is its diversity, both in terms of operations and geography, as well as its cost-cutting measures. Popular Inc. operates an array of financial service subsidiaries not only in Puerto Rico but also in Costa Rica, the Dominican Republic, the US and British Virgin Islands and the US mainland. In recent years, its distinct logo has cropped up in US Spanish-speaking neighborhoods from Los Angeles to Long Island City, N.Y. And even as the banking company has expanded, it cut staff by 800 last year to a slimmer 10,700 employees today.
Another reason for Banco Popular’s success is Carrión himself.
While not everything Carrion touches turns to gold – a foray into the Dominican Republic a few years back didn’t go well – Popular’s success is due in large part to the efforts of the bank’s CEO, who is also the chairman of its holding company.
Carrión came to the job with a background in both finance and information technology, a potent combination in today’s economy. He earned his degree in economics from the University of Pennsylvania’s Wharton School of Finance and his master’s degree in management information systems from Massachusetts Institute of Technology (MIT). He also comes from a banking family – in particular, Banco Popular’s family. His grandfather, Rafael Carrión Pacheco, acquired a majority interest in BPPR in 1926, while his father, Rafael Carrión Jr., served as president and chairman of the board from 1956 until his death in 1991.
"I did grow up in the business, but it was the furthest thing from my mind when I was going to school that I would end up here,” says Carrión, who comes across as affable and easygoing, despite his reputation as a fire-eater. Carrión started his career in 1976 as a programmer at BPPR’s Cupey operations center, later working in the commercial loan division. In 1985, he became president of BPPR, and in January 1989 was named CEO of the bank. Four years later he took over as chairman of both BPPR and Popular Inc.
Heidi Calero, a leading San Juan economist, says it’s hard to overestimate the impact BPPR has had on Puerto Rico. The bank was founded in 1893, five years before the Caribbean island was captured by the US from Spain. “The history of Banco Popular is the history of the Puerto Rican economy. Both have evolved and grown together,” she says.
Adds Joaquín Villamíl, chief economist at Estudios Técnicos and chairman of the board of directors at rival Banco Bilbao Vizcaya de Puerto Rico, “Richard has been an extremely positive influence on Puerto Rico. I don’t think there’s any way Popular will lose its dominant position in the market anytime soon.”
Popular Inc. has grown particularly fast under the young Carrión’s regime. Not only does BPPR control 50 percent of Puerto Rico’s banking business, Popular Inc. also owns the largest leasing company on the island, a potent investment banking division and a substantial mortgage operation. It is, however, Carrión’s drive to expand outside of Puerto Rico that has made a telling difference in its fortunes. “Banco Popular has penetrated all over the island, providing banking services to all sectors, from the very wealthy to the very poor,” says economist Calero. “They now see that future growth lies with the Hispanic market in the United States.”
BPPR’s expansion onto the US mainland began in the late 1980s, even before its takeover of Banco de Ponce. These days, BPPR has 96 offices on the US mainland, seven in the US Virgin Islands and one in the British Virgin Islands. Geographically, its US branches are clustered in regions with large Hispanic populations: New York (32 branches); Chicago (21 branches); California (17); New Jersey (11); Florida (nine), and Texas (five). All together, these branches account for 25 percent of Popular’s total revenues.
"The idea is to expand where Hispanics live. That has been the guiding force in the past few years,” says Carrión. “The six states where we operate cover 80 percent of the Hispanic population. Now, we’re beginning to zero in more on specific cities. Our name is much better-known than we originally thought, and we’ve continued to invest in building the brand in those markets.”
Targeting such customers isn’t easy, since recently arrived US Hispanics are generally wary of banks and government institutions. According to industry figures, only 58 percent of Hispanic households have deposit accounts with banks or brokers, compared with 71 percent of black households and 93 percent of white non-Hispanic households. Yet given that Hispanics are on the fast track to becoming the largest ethnic bloc in the US, it’s easy to see why Popular wants to court them.
Even without its forays to the US mainland, Banco Popular has been at the forefront of banking technology, partly the result of Carrión’s training at MIT. “What distinguishes Popular, aside from its size, is that it’s very aggressively pushing technology in support of their banking activities,” says economist Villamíl. Indeed, Carrión has always tried to acquire the latest technology and adapt it to the Puerto Rican mentality, with its fascination for gadgetry but insistence on service with a human touch. “The bank has always been very innovative,” Carrión suggests. “In the 1950s, we would take a bus, outfit it and go into very small towns that had no banking services. Gradually, we built enough business that way, then began to replace those mobile units with real bank branches.”
In terms of technology, Banco Popular began installing online systems at branches and a large ATM network more than 20 years ago. Today the bank has 200 branches across Puerto Rico, while it has more than three times as many ATMs, some 624 at latest count. Even more impressive is the bank’s aggressive installation of 40,000 point-of-sale (POS) terminals at retail outlets across the island. “We have been able to convince businesses that it’s a lot easier and faster, and much more secure, to do electronic transactions than to be dealing with cash or checks,” says bank spokesman Luís Villares. “Even small businesses are set up to accept debit cards. That’s why the program’s been so successful.”
The result has been a reorientation of Puerto Ricans in terms of their relationship to money, changing a largely cash economy to one that is far more electronic. “I don’t know of any banks our size that do more POS transactions than ATM withdrawals, meaning our customers use their debit cards at stores more often than to take money out of the machines,” says Carrión. “We do more debit-card transactions than all the credit cards combined. This is not an idle boast. These are hard numbers.”
Some 184.9 million Banco Popular transactions were processed via ATMs and POS units last year, up from 70.9 million during 1996. Fully 78 percent of BPPR’s transactions are now electronic. In addition, BPPR handles 2.5 million calls a month to its phone banking system, and more than 100,000 customers have signed up for Internet and PC banking, says Carrión. He estimates the bank invests more than US$50 million a year in technology. “Obviously, electronics is a much bigger part of our business than it is for most banks our size,” he says.
Since the mid-1990s, Carrión has also pushed the bank’s electronic expertise into nearby Latin American countries. In 1996, Banco Popular decided to form its first venture outside Puerto Rico, establishing ATH Dominicana (which stands for A Toda Hora – At Any Hour) in partnership with Banco Popular Dominicano and Codetel, the dominant phone company of the neighboring Dominican Republic. The bank says its ATH Dominicana unit is now the largest ATM network in the Dominican Republic, connecting 818 ATMs and 9,711 POS terminals for 17 institutions.
Its bricks-and-mortar investment in the Dominican Republic was less than successful. On the heels of its ATM expansion, BPPR acquired Banco Gerencial & Fiduciario Dominicano SA. That venture was a frustrating one for Carrión, because his group had to operate according to US banking restrictions, while his competitors did not. Gerencial & Fiduciario was later merged with Banco Hipotecario Dominicano; Popular exercised an option to acquire 20 percent of the new institution.
Learning from its experience in the Dominican Republic, Popular entered the Central American market strictly on the electronic side. In 1999 it formed ATH Costa Rica, which began with a US$2.3 million investment and 70 ATMs. Today, ATH Costa Rica connects 164 ATMs from 22 financial institutions and 5,000 POS terminals. Last year, ATH Costa Rica purchased CreST SA, a local credit card processor and POS acquirer, greatly expanding its capabilities in the nation. Carrión says the Costa Rican subsidiary generates revenues of around US$8 million a year. Next, BPPR hopes to establish electronic networks in El Salvador, Guatemala and Panama.
While expanding its base in the US, Caribbean and Central America, BPPR still has plenty of work to do at home. About 1.4 million people – or roughly 40 percent of the adult population of Puerto Rico – are still “unbanked,” a lower percentage than in most Latin American countries but significantly higher than the US mainland. “We feel we can lower the cost of banking for these people,” says Carrión. “Everybody has to pay bills, everybody has a check to cash and transactions to make. We offer a product where for only US$1 a month, a customer can have an electronic banking card, no minimum balance, unlimited ATM transactions, unlimited POS transactions, interest on the savings part of an account, and a US$5,000 accidental-death policy.”
Despite the array of benefits offered to new clients, however, Banco Popular still has to face the reality of an economic slowdown on the island, following eight years of prosperity. Unemployment currently stands at 11.2 percent, up from 10 percent a year ago. “Unemployment is a basic gauge of our economy, which is strongly linked with the US economy,” says Carrión, noting that since the repeal five years ago of Section 936 – a clause of the US Internal Revenue Code that exempted US companies from paying federal income taxes on profits earned by their Puerto Rico subsidiaries – dozens of companies, from Intel to StarKist to Motorola, have closed their factories here.
The other important factor is the price of oil,” says Carrión. “Because nearly all of Puerto Rico’s energy is oil-generated, the price of oil really percolates through the system, and any increase has a very negative impact.”
The hardest part of his job in Puerto Rico, he says, is dealing with government regulations, “which are extremely frustrating at times” – especially laws that deal with money laundering. “We’re being made responsible for the activities of our customers,” Carrión complains. “It gets to the point where they’re asking you to make judgments and file suspicious activity reports. We’re expected to be 100 percent right. If the customs folks and law-enforcement folks were 100 percent right, we wouldn’t have that problem in the first place.”
In the meantime, Carrión says most of his days are spent in meetings, though he tries to make time to meet customers. “Probably the most thrilling thing for me is to go and open a branch. This is the most productive use of my time, talking to average customers and employees. All the rest is paperwork.” So much for electronic banking.