Fitch Upgrades Sovereign Bancorp's Support Rating; Affirms Other Ratings.

NEW YORK -- Fitch Ratings has upgraded the support ratings of Sovereign Bancorp (SOV) and Sovereign Bank to '3' from '4' and '5', respectively, following the acquisition by Banco Santander (SAN) of a 19.8% stake in SOV. This investment by SAN is in conjunction with the closing of SOV's purchase of Independence Community Bank Corp. (Independence). All other ratings for SOV and Sovereign Bank are affirmed. The Rating Outlook is Stable. A complete list of ratings is provided below.

The basis for the upgrade of the Support Ratings is a moderate probability of support by SAN (rated 'AA/F1+' by Fitch) for SOV and Sovereign Bank in the event of need. Under the source of strength doctrine, U.S. regulators now would look to SAN to provide support, given that the regulators view SAN's ownership as a controlling stake. That said, SAN's investment is SOV is still moderate in scope and SOV will not be integrated in SAN's operations at least in the short run. The agreement between SAN and SOV limits SAN's ownership of SOV to 24.99% for the first two years and gives SAN two seats on SOV's board. Thereafter, the agreement gives the two parties the right to negotiate an acquisition by SAN of 100% of SOV.

The long-term issuer default rating (IDR), short-term issuer rating, and individual rating of SOV continue to reflect its comparatively weak ROA and capital position, combined with its sound asset quality indicators. The Independence acquisition pressures already modest capital levels, particularly tangible equity. Following this acquisition, SOV expects to rebuild its level of tangible equity over the next year. Management does not expect any additional acquisitions until Independence is fully integrated and share buybacks are expected to be suspended until tangible equity is rebuilt.

Fitch has upgraded the following ratings:

Sovereign Bancorp, Inc.

-- Support rating to '3' from '5'.

Sovereign Bank

-- Support rating to '3' from '4'.

Fitch has affirmed the following ratings with a Stable Outlook:

Sovereign Bancorp, Inc.

-- Long-term issuer default rating (IDR) at 'BBB-';

-- Senior debt at 'BBB-';

-- Short-term issuer at 'F3';

-- Individual at 'C'.

Sovereign Bank

-- Long-term issuer default rating (IDR) at 'BBB';

-- Short-term issuer at 'F2';

-- Senior subordinated at 'BBB-';

-- Long-term deposits at 'BBB+';

-- Short-term deposits at 'F2';

-- Individual at 'B/C'.

Other ratings affirmed by Fitch include the following:

Sovereign Capital Trust I

-- Preferred stock at 'BB'.

Sovereign Capital Trust IV

-- Preferred stock at 'BB'.

ML Capital Trust I

-- Preferred stock at 'BB'.

Sovereign Real Estate Investment Trust

-- Preferred stock at 'BB+'.

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.