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Rating Action:

Moody's downgrades Popular, Inc. (sr to A3 from A2); outlook is negative

21 Dec 2007
Moody's downgrades Popular, Inc. (sr to A3 from A2); outlook is negative

New York, December 21, 2007 -- Moody's Investors Service downgraded the ratings of Popular, Inc. and its subsidiaries. Popular was lowered to A3 from A2 for senior debt and to Prime-2 from Prime-1 for short-term debt. The lead bank, Banco Popular de Puerto Rico, was lowered to C+ from B- for bank financial strength and to A2 from A1 for long-term deposits. The bank's Prime-1 short-term rating was affirmed. Following the rating action, the outlook on Popular and its subsidiaries is negative. This concludes Moody's review for possible downgrade that began on November 16, 2007.

The downgrade of Popular's ratings follows Popular's announcement that it will take an impairment charge of up to $175 million related to its web-based E-LOAN platform and an additional charge of up to $165 million associated with the recharacterization of most of its $3.7 billion owned-in-trust U.S. subprime loan portfolio. That portfolio consists of previously securitized mortgages that did not qualify for sale accounting treatment. Most of the underlying securitization trusts have now been amended to allow the transactions to be recognized as sales. That process will remove $3.2 billion of mortgages, including $2.4 billion of subprime mortgages, from Popular's balance sheet. Together, the magnitude of the announced charges will cause Popular to report a net loss for the full year when it announces its fourth quarter 2007 results.

While the recharacterization reduces Popular's subprime mortgage exposure, which Moody's views favorably, residual interests, in the form of IOs and MSRs, will remain on Popular's balance sheet, as will an additional $2.7 billion of U.S. subprime mortgages. The remaining U.S. subprime exposure, combined with the impairment of the E-LOAN platform and the lackluster profitability of Popular's U.S. branch banking business, highlight significant challenges in Popular's U.S. operations that will take time to resolve. As such, Popular's overall credit profile has been somewhat weakened, in Moody's opinion, and resulted in today's downgrade.

The negative rating outlook reflects the issues that Moody's identified when it placed Popular on review for possible downgrade. Specifically, the ongoing credit market disruption makes it challenging for Popular to finance its U.S. consumer loan subsidiary, which is largely financed with short- and medium-term wholesale borrowings at the parent company level. However, Moody's notes that Popular, as anticipated, has worked to broaden its funding sources beyond the capital markets. Moreover, Moody's expects that Popular will be able to meet its holding company financing obligations, but at the potential cost of putting greater pressure on its financial flexibility and earnings.

Despite the negative outlook, Moody's notes that Popular's capital ratios remain comparatively robust, which will help it absorb any additional charges related to its U.S. operations should they arise. In addition, Popular's core Puerto Rican banking franchise, while operating under a local economic recession, is expected to continue to produce healthy earnings.

Downgrades:

..Issuer: BanPonce Trust I

....Preferred Stock Preferred Stock, Downgraded to Baa1 from A3

..Issuer: Banco Popular de Puerto Rico

....Bank Financial Strength Rating, Downgraded to C+ from B-

....Issuer Rating, Downgraded to A2 from A1

....OSO Senior Unsecured OSO Rating, Downgraded to A2 from A1

....Senior Unsecured Deposit Rating, Downgraded to A2 from A1

..Issuer: Popular Capital Trust I

....Preferred Stock Preferred Stock, Downgraded to Baa1 from A3

....Preferred Stock Shelf, Downgraded to (P)Baa1 from (P)A3

..Issuer: Popular Capital Trust II

....Preferred Stock Preferred Stock, Downgraded to Baa1 from A3

....Preferred Stock Shelf, Downgraded to (P)Baa1 from (P)A3

..Issuer: Popular Capital Trust III

....Preferred Stock Shelf, Downgraded to (P)Baa1 from (P)A3

..Issuer: Popular Capital Trust IV

....Preferred Stock Shelf, Downgraded to (P)Baa1 from (P)A3

..Issuer: Popular International Bank, Inc.

....Multiple Seniority Shelf, Downgraded to a range of (P)Baa2 to (P)A3 from a range of (P)Baa1 to (P)A2

..Issuer: Popular North America Capital Trust I

....Preferred Stock Preferred Stock, Downgraded to Baa1 from A3

..Issuer: Popular North America Capital Trust III

....Preferred Stock Shelf, Downgraded to (P)Baa1 from (P)A3

..Issuer: Popular North America Capital Trust IV

....Preferred Stock Shelf, Downgraded to (P)Baa1 from (P)A3

..Issuer: Popular North America, Inc.

....Commercial Paper, Downgraded to P-2 from P-1

....Multiple Seniority Medium-Term Note Program, Downgraded to a range of Baa1 to A3 from a range of A3 to A2

....Multiple Seniority Shelf, Downgraded to a range of (P)Baa2 to (P)A3 from a range of (P)Baa1 to (P)A2

....Senior Unsecured Medium-Term Note Program, Downgraded to A3 from A2

....Senior Unsecured Regular Bond/Debenture, Downgraded to A3 from A2

..Issuer: Popular, Inc.

....Commercial Paper, Downgraded to P-2 from P-1

....Junior Subordinated Shelf, Downgraded to (P)Baa1 from (P)A3

....Multiple Seniority Medium-Term Note Program, Downgraded to a range of Baa1 to A3 from a range of A3 to A2

....Multiple Seniority Shelf, Downgraded to a range of (P)Baa2 to (P)A3 from a range of (P)Baa1 to (P)A2

....Preferred Stock Preferred Stock, Downgraded to Baa2 from Baa1

....Senior Unsecured Medium-Term Note Program, Downgraded to A3 from A2

....Senior Unsecured Regular Bond/Debenture, Downgraded to A3 from A2

Outlook Actions:

..Issuer: BanPonce Trust I

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Banco Popular de Puerto Rico

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Popular Capital Trust I

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Popular Capital Trust II

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Popular Capital Trust III

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Popular Capital Trust IV

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Popular International Bank, Inc.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Popular North America Capital Trust I

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Popular North America Capital Trust III

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Popular North America Capital Trust IV

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Popular North America, Inc.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Popular, Inc.

....Outlook, Changed To Negative From Rating Under Review

Popular, Inc., headquartered in San Juan, Puerto Rico, reported total assets of $47 billion at September 30, 2007.

New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Allen H. Tischler
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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