Fitch Revises Rating Outlook on Sovereign Bancorp to Positive

Business Wire, March 14, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--March 14, 2002

Fitch Ratings affirms its current ratings for Sovereign Bancorp, Inc. (SOV) at 'BB ' senior and 'B' short-term and revises SOV's Rating Outlook to Positive. The ratings for Sovereign Bank were also affirmed and the Rating Outlook remains Stable (see below for a complete list of ratings).

The change in Rating Outlook reflects several positive developments, including the successful integration of the company's sizeable New England branch acquisition, an improved level of tangible equity, and continued debt reduction at the parent. Although tangible equity remains relatively low, it has been steadily improving. Moreover, a recent common stock issuance was used to pay down a portion of the parent's long term debt. These actions have provided additional financial flexibility. Additionally, during September 2001, SOV made its final non-solicitation payment to FleetBoston. These series of payments had compressed earnings generation and subsequent internal capital enhancement. Released from this burden, Fitch expects noticeable improvement in company performance. Additionally, Fitch expects future capital expansion to be driven predominantly by enhanced earnings retention, unlike over the past few years, where SOV supplemented its capital position via issuances of trust preferred securities. Generally, Fitch views outsized positions in trust preferreds, as aggressive and therefore could potentially discount the security's contributions to capital in the future.

SOV's credit quality remains sound, however, as with its peers, has exhibited a slight increase in non-performers, especially within its commercial loan portfolio. Nonetheless, as the company has transitioned away from its past thrift-like balance sheet, which reflected a concentration in low credit cost residential mortgages, Fitch expects the company to build its reserves to reflect moderate increased credit risk and costs associated with its current loan mix. SOV's funding profile has transitioned to a more stable transaction account concentration versus its previous reliance on certificates of deposits.

Sovereign Bancorp, Inc.

--Short-term 'B';

--Long-term 'BB ';

--Individual 'C';

--Support '5';

--Rating Outlook Positive.

Sovereign Bank

--Short-term 'F3';

--Short-term deposit 'F2';

--Long-term 'BBB-';

--Long-term deposit 'BBB';

--Individual 'B/C';

--Support '5';

--Rating Outlook Stable.

Sovereign Capital Trust I-II

--Preferred 'BB-'.

ML Capital Trust I

--Preferred 'BB-'.

Sovereign Real Estate Investment Trust

--Preferred 'BB'.