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National City posts $1.8B loss for 2nd quarter
By Stephen Bernard
AP Business Writer
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NEW YORK -- Regional bank National City Corp. on Thursday reported a $1.76 billion loss for the second quarter, as mortgage loans soured and it took a big charge related to previous acquisitions.

Over the past year, mortgages have increasingly defaulted, forcing banks to set aside more cash to cover current and future losses. National City was no exception as its geographic footprint -- mainly the Midwest and Florida -- has been among the hardest hit by the downturn in the housing cycle.

For the quarter ended June 30, the bank reported a loss of $1.76 billion, or $2.45 per share, compared with a profit of $347 million, or 60 cents per share, in the second quarter of 2007.

The results included a $1.1 billion goodwill impairment charge related to previous acquisitions. Goodwill typically reflects the value of an intangible asset such as a brand name.

Excluding the goodwill charge, the loss was 94 cents per share, according to a National City spokeswoman.

That compares with a loss of 26 cents per share, on average, expected by analysts polled by Thomson Financial. Analysts typically exclude one-time charges from their estimates.

The bank increased its provision for loan losses, more than tenfold, to $1.59 billion, from $145 million last year. Loan-loss provisions cover both current-quarter charge-offs and additional reserves held to cover future losses. Charge-offs are loans written off as not being repaid.

The Cleveland-based bank said the larger provision reflects additional loss reserves for loans secured by residential real estate. The reserves include a $478 million supplemental reserve on loan holdings it is liquidating, including construction loans to individuals, and broker-sourced nonprime mortgage and home equity loans.

Analysts widely agreed the provision was higher than expected, and one of the primary causes for the quarterly loss.

“Reported earnings per share was much worse than we expected, due to a loan loss provision that was more than three times higher than we anticipated, a steep decline in net interest margin and much higher non-performing assets and net charge-offs in the quarter,” RBC Capital Markets analyst Gerard Cassidy wrote in a research note.

Net charge-offs shot up to $740 million, more than seven times the $98 million in the 2007 quarter. National City said $527 million of the charge-offs reflected consumer loans associated with products or origination channels, like broker-sourced subprime mortgage loans and construction loans to individuals, that it no longer handles.

Subprime mortgages are loans given to customers with poor credit history.

Non-performing assets more than tripled to $3.13 billion, from $848 million last year.

National City’s provision for loan losses more than offset its net interest income during the second quarter. Net interest income measures the difference in how much it costs a bank to borrow money and how much it receives from lending money to customers.

National City’s net interest income before loan-loss provisions was $1.02 billion, compared with $1.1 billion during the year-ago period. After the loss provision, the bank actually had an interest expense of $571 million during the second quarter.

Non-interest income at National City, revenue derived from fees and other charges, fell to $431 million from $764 million last year. Like the rest of National City’s business, non-interest income was hindered by mortgage woes. The company lost $146 million on hedging of mortgage servicing rights during the quarter.

Because of the continued deterioration in the mortgage and credit markets, National City raised $7 billion in the quarter in new cash from a group of investors led by Corsair Capital LLC to shore up its capital base. Banks have increasingly tapped private equity markets and offered new shares of stock to help raise money to offset the mounting mortgage-related losses.

National City also slashed its dividend to 1 cent from 21 cents during the quarter to help strengthen its capital position.

The fresh cash was sufficient to help improve National City’s capital ratios and the bank is unlikely to need new capital anytime soon.

“We have more than enough capital to see us through this period,” National City’s chief executive, Peter Raskind, said in a conference call with the media. “We have no intention or plan or need at this point to raise capital.”

Goldman Sachs Group Inc. analyst Brian Foran said the quarterly results were worse than anticipated, but the bank has enough capital to handle the problems.

“The company is absorbing big credit losses with more to come, but still seems to have enough capital,” Foran wrote in a research note.

Citigroup analyst Keith Horowitz said the bank’s strong capital position will allow it to handle the downturn as well, noting that the company’s shares are trading “well below” intrinsic value. In a research note, Horowitz reiterated a “Buy” rating on the stock despite the quarterly results.

Shares of National City slipped 4 cents to $4.67 Thursday.

AP Business Writer Eileen AJ Connelly in New York contributed to this report.

Take a look
A customer leaves a National City Corp. branch, Thursday, July 24, 2008, in Shaker Heights, Ohio. National City Corp. on Thursday reported a $1.76 billion loss for the second quarter, as mortgage loans soured and it took a big charge related to previous acquisitions. (AP Photo/Tony Dejak)
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Reader comments on this story - 5 total

Note: All views and opinions expressed in reader comments are solely those of the individual submitting the comment, and not those of the Pantagraph or its staff.

Old man wrote on Jul 25, 2008 11:26 AM:

" A 35 thousand dollar investment in NCC common stock made during April of 2007 would be worth less than 6 thousand dollars today. "

ONLY IN AMERICA wrote on Jul 25, 2008 7:39 AM:

" Too bad so sad .... National City deserves everything they get ( or don't get ) "

Tom Terrific wrote on Jul 25, 2008 7:36 AM:

" Not So political, No your money is not safe. Do not worry though. The Federal Reserve can just print some more. Of course the more money they print, the farther the value drops. That eqautes to higher prices. Long live Bernanke! woohoo! "

Not so Political wrote on Jul 25, 2008 7:16 AM:

" Really is our money safe in a bank? If a large number of banks go down can the FDIC get all our money back or will we all suffer? I am starting to like the coffee can in the back yard for my next choice of banking !! "

OGS wrote on Jul 25, 2008 1:21 AM:

" OMG! The conspiracy theorists were right! "
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