Fitch Lowers R&G Financial Corp.'s Ratings; Rating Watch Negative

Business Wire, Oct 25, 2005

CHICAGO -- Fitch Ratings has lowered the ratings of R&G Financial Corporation (RGF) and its principal subsidiaries to 'BBB-' from 'BBB' (long-term) and the Individual Rating has been downgraded to 'C' from 'B/C'. Fitch's ratings on RGF and its subsidiaries remain on Rating Watch Negative. (See complete list of affected ratings at the end of this release.)

This rating action follows the announcement that the Securities and Exchange Commission (SEC) has issued a formal order of investigation into RGF. Fitch believes this investigation coincides with First BanCorp's (FBP) announcement on Oct. 21, 2005 that the SEC has also opened a formal investigation into accounting for mortgages purchased from R&G Mortgage improperly classified as mortgage loans rather than treated as commercial loans. The reclassification stems from the underlying transactions failing to meet all the tests of a true sale for financial reporting purposes. Fitch believes it is likely that the review of such transactions will result in additional charges. The charges from the reclassification are in addition to RGF's announcement in April that it plans to change the methodology used to value its residual interests (interest-only securities, or IOs) retained through securitization activity. Fitch expects that capital ratios would not fall below the regulatory hurdles of a well-capitalized institution following the additional charges.

Resolution of the Rating Watch Negative will be driven by release of audited financial statements, conclusion of the SEC investigation, demonstration of management's ability to improve capitalization in relation to growth of assets, and a period of consistent performance at RGF.

The following ratings have been downgraded by Fitch:

R&G Financial Corporation

-- Long-term Senior Unsecured to 'BBB-' from 'BBB';

-- Preferred Stock to 'BB' from 'BB ';

-- Individual to 'C' from 'B/C'

R&G Mortgage

-- Long-term Senior Unsecured to 'BBB-' from 'BBB'.

R-G Premier Bank

-- L-T Deposit Obligations to 'BBB' from 'BBB ;

-- L-T Non-Deposit Obligations to 'BBB-' from 'BBB'

R-G Crown Bank

-- L-T Deposit Obligations to 'BBB' from 'BBB

-- L-T Non-Deposit Obligations to 'BBB-' from 'BBB';

-- Individual to 'C' from 'B/C'.

In addition, Fitch rates the following:

R-G Premier Bank

-- Individual 'C';

-- Support '5'

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.