March 12 (Reuters) - Doral Financial Corp filed for Chapter 11 bankruptcy protection on Wednesday to wind down its remaining operations two weeks after its Puerto Rico-based bank subsidiary was seized by regulators.
Doral Financial’s bankruptcy is the latest reminder of the financial crisis on the island, a U.S. commonwealth, which has been mired for years in an economic slump. The bank has also been dogged by accounting problems and an employee was recently indicted for money laundering.
The seizure of the company’s bank was sparked in part by a refusal by the island’s cash-strapped government to pay $230 million in tax refunds claimed by Doral Financial.
The holding company plans to liquidate its real estate, investments and an insurance subsidiary to repay creditors. It estimated its assets are worth between $50 million and $100 million, according to documents filed with the U.S. Bankruptcy Court in Manhattan.
The company said it owed about $208 million to holders of notes and bonds, according to court documents.
Doral Bank was closed by Puerto Rico’s financial regulator on Feb. 27, the same day the holding company lost a bid to have the island’s Supreme Court hear the tax dispute. Doral Financial said it continues to explore its rights to the tax refund, although it did not explain further in bankruptcy court documents.
The Federal Deposit Insurance Corp was appointed receiver for the bank. The agency estimated the failure would cost its deposit insurance $749 million.
Puerto Rico has suffered a decline in population, stubbornly high unemployment and waning investor confidence. The island’s leaders are pushing a bill in U.S. Congress that would allow Puerto Rico’s public corporations to file for bankruptcy to cut their $20 billion in debts.
Long before the island’s economy cratered, Doral Financial’s bank was a center of controversy and in 2011 a top executive was murdered in what police called an execution.
The bank operated a large mortgage lending operation on the island in the early 2000s but became embroiled in accounting problems and earnings misstatements.
One consequence of the improperly inflated earnings was an overpayment of taxes, which sparked eight years of legal battles over a potential refund.
A new management team took over in 2006 and sought to expand to Florida and New York. However, while the continental U.S. economy recovered from the 2007-09 recession, Puerto Rico’s economy did not and Doral struggled with bad loans. (Reporting by Tom Hals in Wilmington, Del.; editing by Matthew Lewis)