Even as the government ends other support programs, they said, the agency is expected to make temporary financing available to the acquirers to help replace those more expensive deposits. Bids were due this week, they added.
In all, the efforts could cost the F.D.I.C. insurance fund as much as $5 billion, some analysts estimate.
Puerto Rico is not exactly the Iceland of the Caribbean. But like that economically troubled nation, Puerto Rico is an island financially as well as geographically. That makes fixing its banking system a delicate task.
Only 11 banks operate in Puerto Rico, and the three most-troubled institutions hold more than a quarter of all deposits. By comparison, more than 200 of the United States’ 8,000 or so lenders have collapsed since the credit crisis began.
Because deposits are concentrated in so few institutions, regulators have been confronted by a number of vexing questions.
How, for instance, does the government seize one or more of the banks without setting off a run on others? (Answer: Coordinate plans to close them.)
How does it avoid imperiling healthy banks, which would be required to mark down the value of their own loan portfolios if similar assets flooded the market at fire-sale prices? (Answer: Make maintaining a big capital cushion a requirement for bidding.)
And how exactly does the government lure investors to pour capital into an overbuilt economy with excess banking capacity amid the worst downturn in generations? (Answer: The F.D.I.C., as it has in the past, would absorb a big portion of the losses.)
Senior officials from the Treasury Department, which has $1.2 billion invested in two of Puerto Rico’s stronger banks, have weighed in on the strategy.
So have other major regulators, including the Federal Reserve Bank of New York, which supplies currency to Puerto Rico, and the commonwealth’s Office of the Commissioner of Financial Institutions.
The F.D.I.C. has hired Deutsche Bank to act as an adviser on merger and auction plans.
Some of Puerto Rico’s healthier banks have been shoring up their finances in anticipation of once-in-a-lifetime deals.
Doral Financial, for instance, announced last week that it would raise an additional $600 million from private investors to pursue government-assisted acquisitions.
Banco Popular de Puerto Rico raised over $1 billion this month. Oriental Financial Group raised $100 million in March. Some overseas banks with operations on the island, like Scotiabank of Canada and Banco Santander of Spain, have also expressed interest.
Even in better times, Puerto Rico’s banks struggled to gather enough local deposits to keep up with the demand for new loans.
One reason was that Puerto Rico’s four million residents generally have lower income and personal savings than people on the mainland.
Another was the elimination of a lucrative tax break in 2006 that led big corporations to retreat from Puerto Rico, taking their money with them.
An enormous deposit shortfall has developed among the banks. Of the $60 billion of loans outstanding, nearly 60 percent, or $35 billion, have been financed with customer deposits, research from FBR Capital Markets said. On the mainland, by contrast, deposits typically finance about 80 percent of lending.
As a result, Puerto Rico’s banks have had to raise money from savers on the mainland, a costlier and riskier form of financing.
Even before the financial crisis began, the territory was in a deep recession.
The economy has been shrinking for the last four years, and the island’s 16.2 percent unemployment rate far exceeds that of Michigan, which has the highest jobless rate of any state.
The property market is also suffering from its own real estate hangover. Most banks tolerated higher debt levels on construction projects than did their mainland peers.
Some, like Banco Popular and First Bank of Puerto Rico, also financed projects in South Florida and other hot markets in the United States that have since faltered.
“It’s like a fever that extends to a patient that was already sick,” said Heidie Calero, a local economist who advises real estate developers.
Now, Puerto Rico’s lenders are paying the price. About 8.2 percent of loans were either past due or in default in the fourth quarter of 2009, according to Foresight Analytics. That compares with an average of 3 percent on the mainland.
Omaya Sosa-Pascual contributed reporting.