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Fitch Downgrades Popular, Inc. & Subsidiaries; Remain on Watch Negative.

NEW YORK -- Fitch Ratings has downgraded the Long-term Issuer Default Rating (IDR) of Popular, Inc. (Popular) to 'B' from 'BBB' and downgraded the Long-term IDRs of units Banco Popular de Puerto Rico and Banco Popular North America to 'BB-' from 'BBB'. All ratings remain on Rating Watch Negative, where they were first placed on May 15, 2009. A complete listing of ratings follows this release.

Today's action follows Popular's announcement that it is offering an exchange of its preferred stock instruments into common stock to boost its existing weak level of tangible common equity, which stood at just 2.7% of tangible assets on March 31, 2009. The magnitude of this plan underscores the asset quality challenges currently being faced by Popular. The level of non-performing loans remains well above average among major and regional U.S. banks with the prospect of further deterioration.

Popular's ratings remain on Watch Negative given the execution risk associated with the new exchange plan and the prospect of escalating asset quality issues. The removal from Watch Negative hinges on the success of this plan as well as a stabilization of problem loans.

Particularly in a stress scenario, there is the risk that considerable funds from the holding company could be downstreamed to boost bank level capital ratios. This potential outcome could hamper the ability of the holding company (Popular) and sub-holding company (Popular North America, Inc.) to service a considerable level of holding company debt. Consequently, Fitch has widened the notching between holding company and bank level IDRs. The holding company senior debt rating has been assigned a recovery rating of 'RR4'.

Investors in preferred stock are being encouraged to participate through the suspension of preferred dividends. Given this suspension, the preferred stock rating of Popular was downgraded to 'C/RR6' from 'BB+'. (Please see commentary 'Fitch Sees Elevated Risk of Bank Hybrid Capital Coupon Deferral in 2009' dated Feb. 4, 2009 available on Fitch's web site at www.fitchratings.com). While the current plan suggests trust preferred holders will not face an immediate suspension of payments, Fitch believes the potential for future deferral is increasing. Consequently, the trust preferred rating has been downgraded to 'CCC/RR6' from 'BB+'.

Fitch has downgraded the following ratings, which remain on Watch Negative:

Popular, Inc. (Popular)

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

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

--Senior unsecured to 'B/RR4' from 'BBB';

--Short-term Debt to 'B' from 'F2';

--Individual to 'D/E' from 'C'.

Popular North America, Inc.

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

--Senior unsecured to 'B/RR4' from 'BBB';

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

--Short-term Debt to 'B' from 'F2';

--Individual rating to 'D/E' from 'C'.

Banco Popular North America

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

--Long-term deposits to 'BB' from 'BBB+';

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

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

--Individual rating to 'D' from 'C'.

Banco Popular de Puerto Rico

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

--Long-term deposits to 'BB' from 'BBB+';

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

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

--Individual rating to 'D' from 'C'.

BanPonce Trust I

--Trust preferred to 'CCC/RR6' from 'BB+'.

Popular Capital Trust I

--Trust preferred to 'CCC/RR6' from 'BB+'.

Popular Capital Trust II

--Trust preferred to 'CCC/RR6' from 'BB+'.

Popular North America Capital Trust I

--Trust preferred to 'CCC/RR6' from 'BB+'.

Fitch has downgraded the following ratings and removed them from Watch Negative:

Popular

--Preferred stock to 'C' from 'BB+'.

Fitch has affirmed the following ratings:

Popular

--Support at '5';

--Support floor at 'NF'.

Popular North America, Inc.

--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.
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Publication:Business Wire
Date:Jun 8, 2009
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