Thursday, May 15, 2014

Doral Financial Calls on the Puerto Rico Government to Honor Its Agreement

Doral Financial Corporation, the holding company of Doral Bank, with operations in Puerto Rico and the U.S., today called upon the Government of Puerto Rico, and Puerto Rico Department of Treasury ("Hacienda"), to honor its obligations, as it repeatedly committed to do in communications with the financial community since January of 2013. Contrary to these commitments, on May 14, 2014, Doral received a letter wherein Hacienda unilaterally decided that the 2012 Closing Agreement is null and that Doral has no right to a refund of its overpaid taxes. Doral is evaluating its legal options in connection with this letter and anticipates taking appropriate action to protect its legal rights.

Over the last few weeks, Doral has attempted to provide options to the Government to assist in the repayment of its debt to Doral. Instead, Hacienda has sent a letter claiming that its previous agreement with Doral was now null.

According to Doral, this action raises serious questions as to whether the Government will make good on its promises and honor its legal agreements. "Everyone is aware of the Government's tight fiscal situation. But the way out of it cannot be for the Government to default on its obligations and damage its credibility for generations to come."

In a press release, Doral makes three allegations concerning the 2012 Closing Agreement:

  • Doral overpaid its taxes and is due a refund from Hacienda. 
    As previously announced, on April 15, 2014, Doral received a letter from Hacienda requesting Doral to provide information to demonstrate that Doral made actual tax payments to Hacienda that are the subject of the 2012 Closing Agreement pursuant to which the Government of Puerto Rico agreed to pay back to Doral its tax over-payments. On April 23, 2014, Doral responded to the letter from Hacienda and provided copies of tax payments made during the applicable tax period. Copies of Doral's tax returns and cancelled checks for the tax years in question show that Doral paid $155 million in taxes over this period and would have been due interest on the amount paid at a rate of 6% per year compounded annually from 2000 to present. 

  • Hacienda is in direct violation of its previous agreement with Doral.
    The 2012 Closing Agreement expressly provided that it would constitute a violation of the agreement if Hacienda sought to reopen negotiations concerning the tax refund due to Doral.  

  • Doral has honored its agreement with Hacienda.
    Doral has acted in good faith by upholding its end of its agreement with Hacienda to the benefit of the people of Puerto Rico during a difficult economic environment. Under the agreement, Doral expanded its Home Preservation Program by over $100 million allowing Puerto Rico families to restructure or refinance their existing loans and remain in their homes. Furthermore, Doral has modified more than $40 million in commercial loans to local business owners, in addition to its extensive investments in community initiatives. 

As previously announced, Doral is in the process of developing a revised capital plan intended to enable the Company to remain in compliance with the requirements of its regulators. Among other things, this revised plan is intended to address a recent determination by the Federal Deposit Insurance Corporation regarding the treatment of tax receivables from the Government of Puerto Rico.

Doral's has been operating in Puerto Rico for more than 30 years. It currently has 1,200 employees and approximately 300,000 clients.


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