TEXT-Fitch cuts Santander Bancorp IDR to 'BBB+/F2'
June 11 - Fitch Ratings has downgraded the long- and short-term Issuer Default Ratings (IDRs) of Santander Bancorp (SBP) to 'BBB+/F2' from 'A-/F1'. A full list of rating actions follows at the end of this release. The downgrade was a result of Fitch's downgrade of the long-term IDR of SBP's parent company, Banco Santander, on June 11, 2012. SBP's IDRs are correlated to Banco Santander's, and changes in Banco Santander's IDRs result in changes to SBP's. For additional details, please see 'Fitch Downgrades Santander & BBVA to 'BBB+'/Negative Outlook on Sovereign Action'. The Rating Outlook for SBP is Negative, which is in line with Banco Santander's Outlook. Fitch affirmed SBP's standalone rating, the Viability Rating (VR), at 'bb+'. The affirmation is supported by the company's sound operating performance and solid capital position while operating in the challenging Puerto Rican market. Similarly to local peers, asset quality has been a challenge given the macro environment in Puerto Rico as evidenced by high unemployment of 16% and continued negative Gross National Product (GNP). Although Fitch is concerned with SBP's elevated levels of non-performing assets (NPAs) at 7.24%, it compares well to local peers with an average NPA of 13.95% at 1Q'12. SBP's loan portfolio exhibits better credit performance due to more conservative underwriting and overall risk management practices (including a relatively low concentration in construction lending). Additionally, the company continues to build its capital base improving its tangible common equity ratio to 8.48% for 1Q'12 compared to 7.41% for 1Q'11 attributed to internal capital generation. Fitch believes there is limited upside to SBP's VR given the concentration in its loan book by product and geography and relatively small franchise. The VR could be negatively affected if loan portfolio quality deteriorates, particularly if significant operating losses emerge and the company's capital position is eroded. SBP's IDRs would be negatively affected if the parent bank's ratings are downgraded or Fitch's view of support changes. Although the Support Rating was downgraded to '2', Fitch believes there is still a high probability of support for SBP by its parent in the event of need. SBP is the third largest bank in Puerto Rico by total assets and by deposits with approximately an 11% share. SBP offers banking and other financial services through its subsidiaries, Banco Santander Puerto Rico, Santander Financial Services, Santander Securities Corporation among other smaller subsidiaries. SBP is wholly owned by Banco Santander following the completion of a tender offer for remaining publicly owned shares in 2010. Fitch has taken the following rating actions: Santander Bancorp --Long-term IDR downgraded to 'BBB+' from 'A-'; Outlook Negative; --Short-term IDR downgraded to 'F2' from 'F1'; --Viability Rating affirmed at 'bb+'; --Support Rating downgraded to '2' from '1'; --Subordinated debt downgraded to 'BBB' from 'BBB+'. Banco Santander Puerto Rico --Long-term IDR downgraded to 'BBB+' from 'A-'; Outlook Negative; --Short-term IDR downgraded to 'F2' from 'F1'; --Viability Rating affirmed at 'bb+'; --Support Rating downgraded to '2' from '1'; --Long-term deposit rating downgraded to 'A-' from 'A'; --Short-term deposit rating downgraded to 'F2 from 'F1'. Santander PR Capital Trust I --Preferred stock downgraded to 'BB' from 'BB+'. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Aug. 16, 2011); --'Bank Holding Companies' (Aug. 16, 2011). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria Bank Holding Companies
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