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National City posts $1.8 billion loss for 2nd quarter

Associated Press

NEW YORK (AP) — 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. Cleveland-based 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 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.

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 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.”

Shares of National City rose 34 cents, or 7.2 percent, to $5.05 in morning trading.

Regional competitors such as Fifth Third Bancorp have also struggled with the weakening mortgage market.

Like National City, Fifth Third raised new capital and cut its dividend in the second quarter to help shore up its capital base. Fifth Third raised $1 billion through the issuance of convertible preferred stock, raised an additional $1 billion through the sale of assets and slashed its dividend by nearly two-thirds to 15 cents from 44 cents.

Earlier in the week, Fifth Third reported a loss of $202 million.

Fifth Third’s results were hurt by a sharp increase in its loan-loss provisions as well.

 


Filed by Associated Press July 24th, 2008 in Top Stories.

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