BOARD OF GOVERNORS 

OF THE 

FEDERAL RESERVE SYSTEM 

Jeffrey D. Haas, Esq. 

Patton Boggs LLP 

2000 McKinney Avenue 

Suite 1700 

Dallas, Texas 75201-1858 

Dear Mr. Haas: 

WASHINGTON, O. L 20551 

ADDRESS OFFIC)AL CORRESPONDENCE 

TO THE BOARD 

April 29, 2010 

This is in response to the request by R&G Financial Corporation 

("R&G Financial"), San Juan, on behalf of its subsidiary bank, R-G Premier Bank 

of Puerto Rico ("Bank"), Hato Rey, both of Puerto Rico, for an exemption from 

section 23A of the Federal Reserve Act and the Board's Regulation W that would 

permit Bank to acquire all the shares of its affiliate, R&G Mortgage Corporation 

("R&G Mortgage") also in San Juan.! ,; 

R&G Mortgage is primarily engaged in the business of servicing first 

and second mortgage loans on single-family residential properties secured by real 

estate primarily located in Puerto Rico. More than 65 percent ofthe servicing 

portfolio ofR&G Mortgage is comprised of mortgage loans owned by Bank. 

R&G Financial proposes to undertake a one-time internal corporate reorganization 

pursuant to which it would transfer R&G Mortgage to Bank in consideration for 

C 

J Upon consummation of 

the transaction, R&G Mortgage will become a wholly owned subsidiary of Bank. 

Section 23A and Regulation W limit the amount of "covered 

transactions" between a bank and any single affiliate to 10 percent of the bank's 

capital stock and surplus and limit the amount of covered transactions between a 

bank and all its affiliates to 20 percent of the bank's capital stock and surplus. 

! 12 U.S.C. § 371c; 12 CFR Part 223. 
-2-

"Covered transactions" include a bank's purchase of assets from an affiliate and a 

bank's extension of credit to an affiliate. The statute and regulation also require a 

bank to secure its extensions of credit to, and certain other covered transactions 

with, affiliates with prescribed amounts of collateral. In addition, section 23A and 

Regulation W prohibit a bank from purchasing low-quality assets from an affiliate. 

Regulation W provides that a bank's acquisition of a security issued 

by a company that was an affiliate of the bank before the acquisition is treated as a 

purchase of assets by the bank from an affiliate if (i) the company becomes an 

operating subsidiary of the bank as a result of the transaction and (ii) the company 

has liabilities at the time of the acquisition.2 R&G Mortgage is currently an 

affiliate of Bank and would become an operating subsidiary of Bank immediately 

after the reorganization. R&G Mortgage will have outstanding liabilities at the 

time of the reorganization. Accordingly, the transfer of all the capital stock of 

R&G Mortgage to Bank would be an asset purchase subject to the quantitative and 

qualitative limitations of section 23A and Regulation W. The Regulation W value 

of the covered transaction would be approximately t J - the total 

liabilities ofR&G Mortgage at the time ofthe reorganization.3 Because the capital 

stock and surplus of Bank at the time ofthe contribution would be approximately 

$387 million, the proposed covered transaction would exceed Bank's quantitative 

limits under section 23A and Regulation W. Accordingly, R&G Financial, on 

behalf of Bank, has requested an exemption to permit it to accomplish the 

reorganization. 

[ 

] 

2 See 12 CFR223.31(a). 

3 See 12 CFR 223.31(b). 

( 

] 
- 3 -

Section 23A and Regulation W specifically authorize the Board to 

exempt, in its discretion, transactions or relationships from the requirements ofthe 

statute and rule if the Board finds such exemftions to be in the public interest and 

consistent with the purposes of section 23A. Bank is in weak financial condition, 

and the FDIC anticipates placing the bank into receivership. { 

J 

The Board has approved exemptions under section 23A for one-time 

asset transfers that are part of a corporate reorganization where certain conditions 

are met to protect the bank. In similar section 23A exemption requests involving 

the transfer of an affiliate to a bank, the Board usually limits the purchase of 

low-quality assets by the bank and obtains commitments from a parent holding 

company to protect the bank from any significant deterioration of the transferred 

assets. The FDIC, which is the primary federal supervisor for Bank as well as 

responsible for the bank's resolution, has informed the Board that the FDIC 

supports Bank's purchase of the mortgage subsidiary without those conditions.6 

Because this proposal is intended to aid in the resolution of a failing bank and 

would be accomplished as part of a receivership and sale of Bank by the FDIC, the 

standard commitments relating to the transfer of low-quality assets or guarantee by 

a parent holding company against loss on the transferred assets are not necessary or 

feasible. 

[ 

] ("FDIC Letter"). 

5 12 U.S.C. § 371c(f)(2); 12 CFR 223.43(a). 

6 The FDIC has requested an opportunity to comment on any future changes to the 

nature and structure of the proposal to determine if there is any unanticipated risk 

to the Deposit Insurance Fund. 
-4-

Given the unusual circumstances of the proposed transaction, 

including the important contribution it may make to the least-cost resolution of the 

bank, and in light of the foregoing discussion, the granting of an exemption to 

permit the proposed transaction appears to be in the public interest and consistent 

with the purposes of section 23A. Accordingly, the Director of the Division of 

Banking Supervision and Regulation, pursuant to authority delegated by the Board, 

and with the concurrence of the General Counsel, hereby grants the requested 

exemption. 

This determination is specifically conditioned on compliance by 

R&G Financial and Bank with all the commitments and representations made to 

the Board in connection with the exemption request. These commitments and 

representations are deemed to be conditions imposed in writing in connection with 

granting the request and, as such, may be enforced in proceedings under applicable 

law. This determination is based on the specific facts and circumstances 

surrounding the proposed transaction and may be revoked in the event of a material 

change in those facts and circumstances or failure by R&G Financial or Bank 

observe its commitments and representations. Granting this exemption does not 

represent a determination concerning the permissibility of any other transaction 

under section 23A or Regulation W. 

Sincerely yours, 

Robert deY. Frierson 

Deputy Secretary of the Board 

cc: Federal Reserve Bank of New York 

Federal Deposit Insurance Corporation