Fitch Downgrades S-T IDR of Popular, Inc. to 'F2'; L-T IDR on Watch Negative

Business Wire, Oct 4, 2007

NEW YORK -- Fitch Ratings has downgraded the short-term Issuer Default Rating (IDR) of Popular, Inc. (Popular) to 'F2' from 'F1' and placed Popular's long-term IDR of 'A-' on Rating Watch Negative. Fitch has also placed the short-term and long-term IDRs of Banco Popular de Puerto Rico, Popular's major banking subsidiary, on Rating Watch Negative. A complete list is included at the end of this release.

The rating actions reflect continued earnings and asset quality pressure, combined with heightened concerns regarding liquidity at the holding company level. Earnings and asset quality have been negatively affected by the relatively weak economy in Puerto Rico and mortgage exposure on the U.S. mainland. When compared to the average of major U.S. banks, Popular's non-performing assets (NPA) ratio remains comparatively high. Elevated NPA ratios are common among Puerto Rican banks, stemming from a higher level of personal bankruptcies on the island and difficult economic environment overall.

Popular's subprime mortgage exposure on the U.S. mainland further contributes to its comparatively high NPA ratio. Given the stress in the subprime mortgage area, sizable additional charges are likely. However, Popular's subprime exposure still appears manageable overall. The bulk of the subprime portfolio consists of first mortgages with an average FICO at the higher end of the subprime range and a fairly conservative average loan-to-value (LTV). Further, a considerable portion of subprime mortgage exposure is within an on-balance-sheet securitization, which reduces potential losses on this portion.

By taking these actions, Fitch is differentiating between holding company and bank level short-term IDRs. In particular, Banco Popular de Puerto Rico has a stronger liquidity and funding profile relative to Popular, Inc. and its sub-holding company, Popular North America (PNA). At the PNA level, there is a considerable amount of wholesale borrowings. Given the credit market difficulties recently, refinancing maturing borrowings has become more challenging. Fitch believes that by securing alternative sources of funding, the situation is manageable but no longer merits an 'F1' rating.

Removal of the Rating Watch Negative will be driven by a resolution of funding issues at the holding company level (including PNA) and a stabilization of core profitability and asset quality. Continued deterioration in financial performance and liquidity could result in additional rating downgrades.

Fitch downgrades the following:

Popular, Inc.

--Short-term IDR to 'F2' from 'F1'.

Popular North America, Inc.

--Short-term IDR to 'F2' from 'F1'.

The following ratings have been placed on Rating Watch Negative:

Popular, Inc.

--Long-term IDR 'A-';

--Senior unsecured 'A-';

--Preferred Stock 'BBB '.

Popular North America, Inc.

--Long-term IDR 'A-';

--Senior unsecured 'A-'.

Banco Popular North America

--Long-term IDR 'A-';

--Long-term deposits 'A';

--Short-term IDR 'F1';

--Short-term deposits 'F1'.

Banco Popular de Puerto Rico

--Long-term IDR 'A-';

--Long-term deposits 'A';

--Short-term IDR 'F1';

--Short-term deposits 'F1'.

BanPonce Trust I

--Trust preferred 'BBB '.

Popular Capital Trust I

--Trust preferred 'BBB '.

Popular Capital Trust II

--Trust preferred 'BBB '.

Popular North America Capital Trust I

--Trust preferred 'BBB '.

The following ratings have been affirmed:

Popular, Inc.

--Individual 'B/C';

--Support at '5'

--Support floor 'NF'.

Popular North America, Inc.

--Individual 'B/C';

--Support at '5'

--Support floor 'NF'.

Banco Popular de Puerto Rico

--Individual 'B/C';

--Support '4';

--Support Floor 'B'.

Banco Popular North America

--Individual 'B/C';

--Support '5';

--Support floor 'NF'.

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.