Sovereign to write down $1.58B in 4Q

PHILADELPHIA – Sovereign Bancorp Inc. (NYSE: SOV), parent of Sovereign Bank, today announced $1.58 billion in planned fourth-quarter writedowns.

Its announcement cited “continued volatility in the financial markets and deterioration in the credit environment” as a contributing factor, along with the bank’s $3.6 billion purchase of Independence Community Bank Corp. in 2006.

“It’s a major hit to earnings,” Lee Calfo, an analyst with Boenning & Scattergood Inc., in West Conshohocken, Pa., told Bloomberg News. “If they had it to do over again – in hindsight, clearly they’d want the capital they spent on that acquisition.”

Sovereign said the fourth-quarter charges are expected to include $1.4 billion in one-time non-cash charges for goodwill impairments; $180 million related to impairment of certain Fannie Mae (FNMA) and Freddie Mac (FHLMC) preferred stock securities; an $88 million increase in provisions for loan and lease losses, to $738 million or 1.28 percent of total loans; and $27 million in pre-tax charges related to financing Sovereign had provided to two mortgage companies, which have since defaulted on certain agreements.

The bank also pared the value of its consumer and New York units, and said it had stopped making auto loans in the Southeast and Southwest.

“The majority of these charges do not impact cash flows, tangible or regulatory capital or our liquidity,” Joseph P. Campanelli, Sovereign’s president and CEO, said in a statement today.

“While certain of these charges moderately impact our tangible capital, management believes based on our forecasts that we can achieve our interim target of 4.5 percent tangible capital by the end of the third quarter of 2008. After reaching this goal, we anticipate growing tangible capital further.”

“Sovereign is a fundamentally sound financial institution,” Campanelli added. “Importantly, our capital exceeds the levels defined as ‘well capitalized’ by our regulators. Our forecasts indicate that Sovereign can maintain this designation even under a further worsening of industry conditions.”

Sovereign Bancorp Inc. (NYSE: SOV), the parent company of Sovereign Bank, is a $90 billion financial institution with nearly 800 community banking offices, more than 2,000 ATMs and about 12,000 employees mostly in the Northeast. For additional information, visit www.sovereignbank.com.