Ahead of the Bell: Sovereign upgraded

NEW YORK - A report that Sovereign Bancorp Inc. will raise up to $2 billion to offset losses on troubled loans led an analyst to boost his rating, but cut estimates on Friday.

Keefe, Bruyette & Woods analyst Robert Hughes upgraded Sovereign to "Market Perform" from "Underperform." He kept a $7 price target, implying he expects the stock to slide about 6 percent from Thursday's $7.46 close.

The Financial Times reported Thursday that Philadelphia-based Sovereign will get a $1 billion to $2 billion capital infusion from a group of investors led by Spain's Grupo Santander.

Hughes said he expects the company to raise $1 billion in common equity and $500 million in convertible preferred equity.

Sovereign spokesman Ed Shultz declined to comment.

"While the details remain unknown, and the company has yet to execute, we think the risk-reward relationship in the shares appears more balanced at current levels," Hughes said in a note to clients.

For 2009, Hughes now expects earnings of 90 cents per share, down from a previous estimate of $1.05 per share. Analysts polled by Thomson Financial expect, on average, earnings of 88 cents per share in 2009.

Shares closed Thursday at $7.46. The stock has dropped about 32 percent this year.

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