Fitch Downgrades Popular, Inc.'s Long-term IDR to 'BBB'; Outlook Negative

Business Wire, Jan 22, 2009

NEW YORK -- Fitch Ratings has downgraded the following ratings of Popular, Inc. (Popular):

-- Long-term Issuer Default Rating (IDR) to 'BBB' from 'A-';

-- Senior unsecured to 'BBB' from 'A-';

-- Preferred stock to 'BB ' from 'BBB ';

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

Popular's short-term IDR rating is affirmed at 'F2'. Fitch has maintained the Negative Rating Outlook. A complete list of ratings is included at the end of this release.

Fitch recognizes Popular's numerous positive actions over the last year to address its near-term challenges. However, continued credit quality deterioration and the expectations for ongoing pressure in the real estate-related portfolios increase the likelihood that earnings and capital levels will be pressured well into 2009. Given recent trends in core operating performance and the difficult outlook, Fitch has downgraded the IDR and Individual rating, accordingly. Popular's leading franchise in Puerto Rico, diverse business mix and good liquidity position help support the IDRs at current levels. The ratings also incorporate Popular's improved financial flexibility given its participation in the Capital Purchase Program (CPP).

The Rating Outlook remains Negative reflecting the possibility that credit and market conditions could deteriorate further, placing additional stress on the company's turnaround prospects. A stabilization of core profitability and asset quality would have to be achieved before the Rating Outlook returns to Stable.

Over the last year, Popular has taken strategic initiatives to restructure its franchise and improve liquidity and capital. On the U.S. mainland, Popular has drastically restructured its operations by changing its business model and reducing its credit risk profile. The company has successfully completed sales of mainland loans and servicing assets (related to Equity One and the sale of most of Popular's branches in Texas). As part of its efforts to enhance liquidity and capital, Popular issued about $350 million in senior notes to the Puerto Rican market in the latter part of 2008. Additionally, the company participated in the US Treasury CPP program issuing $935 million of senior preferred securities.

While Popular is positioning itself for improved profitability over the long term and focused on reducing its credit risk profile, the downgrade reflects the near-to-intermediate term pressures facing the company. Popular credit costs will likely increase as it resolves existing problems in its construction portfolios and emerging problems elsewhere in its loan book. Consequently, Fitch expects profitability measures to be pressured in 2009, given the elevated levels of problem assets and the weakened economic environment.

The following ratings have been downgraded with a Negative Rating Outlook:

Popular North America, Inc.

-- Long-term IDR to 'BBB' from A-';

-- Senior unsecured to 'BBB' from 'A-';

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

Banco Popular North America

-- Long-term IDR to 'BBB' from A-';

-- Long-term deposits to 'BBB ' from 'A';

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

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

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

Banco Popular de Puerto Rico

-- Long-term IDR to 'BBB' from A-';

-- Long-term deposits to 'BBB ' from 'A';

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

-- Short-term deposits to 'F2' from 'F1';

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

BanPonce Trust I

-- Trust preferred to 'BB ' from 'BBB '.

Popular Capital Trust I

-- Trust preferred to 'BB ' from 'BBB '.

Popular Capital Trust II

-- Trust preferred to 'BB ' from 'BBB '.

Popular North America Capital Trust I

-- Trust preferred to 'BB ' from 'BBB '.

The following ratings have been affirmed:

Popular, Inc.

-- Short-term IDR at 'F2';

-- Support at '5'

-- Support floor at 'NF'.

Popular North America, Inc.

-- Short-term IDR at 'F2';

-- Support at '5'

-- Support floor at 'NF'.

Banco Popular North America

-- Support at '5';

-- Support floor at 'NF'

Banco Popular de Puerto Rico

-- Support at '4';

-- Support Floor at 'B'

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.