Boston, MA 06/03/2014 (wallstreetpr) – Doral Financial Corp. (NYSE:DRL) is actively involved in retail banking activities in Puerto Rico and the United States and is somehow facing a liquidity crisis. First, because of Puerto Rico’s hiking municipal bond rates and second because the commonwealth recently denied to return the tax overpayments and the interest on it which almost totals up to $230 million. These two factors are strong enough to break the toughest of the company and the same effect can be seen on DRL.
Further impairment of the bank situation
Doral Financial Corp. (NYSE:DRL) and Puerto Rico underwent an agreement where the government was ready to pay back the overpaid taxes. This was good news for the company back then! But lately, Puerto Rico refused to honor its promise and in May of this year. DRL received an alarming letter from the Puerto Rico Department of Treasury which stated that the agreement made in 2012 stood void and the DRL had no right to get the refund of its overpaid taxes. Yes, certainly, this news came as a shock to DRL and further impaired the capital position of the bank. Now the matter can be resolved only by 2 way – either the DRL and Puerto Rico government renegotiate the terms or they both appear in front of the court.
Puerto Rico Department of Treasury says to give proof of the payments made
Worst part is that it seems that Puerto Rico does not have records of the disputed tax payments, or overpayments that were made by the Doral Financial Corp. (NYSE:DRL) between 2000 and now, and this is clear from the fact that the Puerto Rico Department of Treasury asked for proof for all these tax payments made. Surely, this would have hit DRL with surprise and shock but since DRL is truthful in its eyes and responded with the copies of tax payments it made to the Puerto Rico Department of Treasury.
Still there is four months time to stabilize the situation
Firstly, the FDIC requirement that is to improve Tier 1 capital is taking its toll on the bank capital position and on top of it the refusal from the Puerto Rico government has further led it to drains. But still it has about four months time to sell some of its assets and property, and if it is able to crack a deal with some good paying buyers, its shares will improve drastically.