TEXT - Fitch may cut Banco Popular Espanol preference shares

Thu Jan 31, 2013 12:34pm EST

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(The following statement was released by the rating agency)
    Jan 31 - Fitch Ratings has placed the preference shares issued by Banco
Popular Espanol, SA (Popular) through its vehicles on Rating Watch Positive
(RWP). The action follows the request for a group of investors in the notes to
vote on a proposal to amend the trigger on the coupon omission of these notes
from the availability of "Distributable Profits" to the wider-ranging
"Distributable Profits and Reserves".

SENSITIVITIES/RATING DRIVERS

The RWP reflects Fitch's view that it is highly likely that the amendment will 
be approved. The change will lower the coupon omission trigger to the prevailing
regulatory capital minima and will therefore make it harder for the issuer not 
to pay coupons on the notes. If the amendment is approved, Popular will be able 
to pay coupons out of distributable reserves and not just out of the previous 
year's income. 

In accordance with its criteria, Fitch believes that this change will reduce the
risk of non-performance compared to the anchor rating, the Viability Rating (VR)
to minus two (currently minus three). Like most other Spanish banks, Popular 
currently sets the coupon payments on the above listed securities to depend on 
the previous year's net income, a much easier trigger to activate. 

Fitch will continue to apply two notches from the VR for loss severity as 
recoveries are expected to be poor relative to the average. Therefore, on 
resolution of the RWP, Fitch expects to upgrade the preference shares by one 
notch to 'B'. The approval of the change in the issuing vehicles' by-laws and 
issues' terms and conditions is expected by early March.

The rating of Popular's preference shares are sensitive to any rating action on 
its VR.

The rating actions are as follows: 

BPE Preference Shares International Limited:

Preference shares (ISIN: KYG717151099 and KYG1280w1015) of 'B-' placed on RWP 

Popular Capital, S.A.:

Preference shares (ISIN: DE0009190702; DE000A0BDW10; XS0288613119 and 
ES0170412003) of 'B-' placed on RWP

 (Caryn Trokie, New York Ratings Unit)
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