National City Secures Financing to Weather Mortgage Crisis

CLEVELAND OHIO - April 21 2008 - National City, the nation’s 10th largest bank, announced Monday that it had secured a $7 billion capital infusion from equity investors to help it survive the home mortgage crisis, at least temporarily quashing speculation that it would have to be sold.

The move did not appease investors, however, who sent National City’s stock tumbling 28 percent to its lowest level in about 17 years after the bank also posted a $171 million first-quarter loss and slashed its dividend.

National City said it secured $985 million from Corsair Capital in New York, which has international experience with troubled financial institutions. The rest will come from other investors, including current institutional shareholders.

The bank, which operates largely in the Midwest, cut its dividend to 1 cent per share from 21 cents to help strengthen its capital position.

National City chief executive Peter E. Raskind said in an interview that the bank’s board explored a wide range of options and unanimously concluded that the capital infusion was in the best interest of shareholders.

Raskind told analysts in a conference call that the infusion will help stabilize the bank.

“It reassures customers we are here for the long haul,” he said.

On April 1, the company hired New York investment bank Goldman Sachs to look into strategic alternatives. Analysts thought one option was putting National City up for sale, and several banks were viewed as potential buyers.

Raskind would not comment on whether any potential buyers were considered.

National City is raising money during the deterioration in the credit and mortgage markets that has plagued banks since the middle of 2007 and cut into capital positions.

“We came into this period with somewhat more exposure to residential real estate than some, and therefore we feel the stress somewhat more,” Raskind said.

Oppenheimer analysts Terry McEvoy and Erik Zwick said in a report Monday that a merger involving National City still might happen.

“Over time, the old banking culture of National City, which at one point reflected strong Midwestern values and decision making, may emerge. Unfortunately, our guess is that, prior to that, National City will be a part of a much larger financial institution,” they wrote.

On Monday, the bank said it lost 27 cents per share in the January-March period. A year earlier, it had a profit of $319 million, or 50 cents per share, in the quarter.

Its shares fell $2.30 to close at $6.03 after sinking to a 52-week low of $5.92 earlier in the session. Its shares are about 85 percent below their high for the past year.

National City will issue 126.2 million shares of common stock at a purchase price of $5 per share. It will also issue 63,690 shares of preferred stock that will automatically convert into 20,000 shares of the company’s common stock.

Corsair Capital and certain other participating investors will receive warrants with an exercise price of 115 percent of the company’s average closing price for the five-trading-day period beginning Monday, with a cap of $8.50 per share.

The moves allow the National City board to remain in control. Corsair Capital vice chairman Richard Thornburgh, who will represent the company on National City’s board, said the bank has strong core services.

National City, Ohio’s largest bank holding company with assets of $155 billion, was heavily exposed to the nation’s troubled mortgage and housing woes, but it has cut jobs and moved away from broker-originated subprime lending.

On Jan. 2, National City disclosed that it was shutting down its wholesale mortgage division, eliminating 900 jobs, because of the weakened housing and credit markets. In all, National City has eliminated about 3,400 jobs over the past few months.

On Monday, the company revised future loss expectations and said it had significantly increased reserves, in particular liquidating portfolios of nonprime mortgage and broker-sourced home-equity loans.

Ohio Bank Secures Financing To Weather Mortgage Crisis
by M.R. Kropko | Associated Press