Doral slashes dividend, SEC investigation widens - Puerto Rico

October 26, 2005
By Ken Parks
Business news Americas

Puerto Rico's largest residential mortgage lender Doral Financial Corporation said Tuesday night that it is slashing its dividend by 56% and that an informal SEC probe into its accounting practices has been widened to a full blown investigation.

"The company has received a subpoena from the SEC seeking the production of documents principally regarding the restatement and related financial reporting matters and the terms of certain transactions with local financial institutions," Doral said in a statement.

Doral also said it no longer expects to file its amended 2004 annual report by November 10 due to new information regarding the sale of mortgage loans to local financial institutions.

If the company's audit committee decides that a transaction does not qualify as a sale for accounting purposes, Doral would record the transaction as a loan payable secured by mortgage loans and reverse the gain previously recognized for the transaction. Doral would then be required to create provisions for those loans, according to analysts, putting greater demands on its capital.

"The company expects that it will continue to meet its regulatory capital requirements following the impact, if any, of this information on its financial statements," Doral stated.

Doral shocked investors earlier this year when it said it would have to restate financial results from 2000 to 2004 and write off US$615mn to correct how it values the floating rate, interest-only (IO) strips it uses to hedge its mortgage portfolio. In addition to the SEC investigation, Doral has been served a grand jury subpoena from the US Attorney's Office for the Southern District of New York...