Sunday, April 20, 2008
National City & Corsair Capital In $7 Billion Deal
Cleveland based National City Corp., Ohio's largest bank, is all set to receive between $6 to $7 billion in a capital infusion bailout from an investment group led by the New York based private equity group Corsair Capital LLC. The massive investment, which amounts to nearly half of National City's stock at a price of $5 per share, is meant to compensate for National City's subprime mortgage related losses.
Details and backgrounder for the deal from Teresa Dixon Murray and Peter Krouse, Cleveland Plain Dealer. The deal, approved by the bank's board this evening, will preserve the 163-year-old bank's Cleveland headquarters and allow it to remain independent. The bank also plans to cut its dividend to shareholders to 1 cent per share. It had been 21 cents, after being cut in half in January. Corsair Vice Chairman Richard Thornburgh will take a seat on National City's board of directors. Before joining Corsair Capital in 2006, Thornburgh, an Ohio native with more than 30 years in global banking, was executive vice chairman of Credit Suisse First Boston.
National City's problems are blamed almost entirely on its strategy under former Chairman David Daberko during the 2002-2005 mortgage boom, when the bank didn't diversify enough and instead allowed home loans to make up half of the company's $2 billion annual profits. The amount of loans designated as risky that National City is holding has actually grown in recent months from $17 billion to $25 billion - more than 20 percent of National City's portfolio.
David Enrich, Robin Sidel And Peter Lattman, Wall Street Journal, provide a bit of background about Corsair Corp LLC. As a result of the injection, Corsair will hold a 9.9% stake in National City. In 4 p.m. New York Stock Exchange composite trading Friday, National City shares fell 16 cents to $8.33. The stock has plunged 78% in the past year, shrinking the bank's market value to $5.3 billion. Launched by what is now J.P. Morgan Chase & Co. to invest in ailing financial institutions, Corsair is named after John Pierpont Morgan's yacht. Corsair, which operated as part of J.P. Morgan until 2006, is led by Nicholas Paumgarten, a former First Boston investment banker. The private-equity concern focuses exclusively on financial-services investing.
David Mildenberg and Elizabeth Hester, Bloomberg News, speculate on why it was important for National City to close this deal so urgently. Corsair's holdings include stakes in banks in Argentina, Brazil, Korea, Poland and Sweden. National City faced pressure to complete a transaction or discuss the status of negotiations before it reports its first- quarter results on April 22, said Scott Fine, a finance professor at Case Western Reserve University in Cleveland.
Well, at least that puts to rest the rumors about National City being bought off. That may be good news for Cleveland residents who are employees at National City, and won't have to worry about layoffs, but what does it say about Ohio's largest bank when no one wants to buy it even in a firesale? Besides, the story does not end here. They still have the First Quarter results to announce of April 22, and after that, there's a lot of cleaning up to do. If National City is still unable to shake off its subprime related woes, the axe may fall down again by the end of the next quarter. Only, next time, there won't be any speculation about possible buyers. Corsair and its group of investors will simply buyout the rest of the stock, take the bank apart and sell off the pieces at a premium to different buyers.
Details and backgrounder for the deal from Teresa Dixon Murray and Peter Krouse, Cleveland Plain Dealer. The deal, approved by the bank's board this evening, will preserve the 163-year-old bank's Cleveland headquarters and allow it to remain independent. The bank also plans to cut its dividend to shareholders to 1 cent per share. It had been 21 cents, after being cut in half in January. Corsair Vice Chairman Richard Thornburgh will take a seat on National City's board of directors. Before joining Corsair Capital in 2006, Thornburgh, an Ohio native with more than 30 years in global banking, was executive vice chairman of Credit Suisse First Boston.
National City's problems are blamed almost entirely on its strategy under former Chairman David Daberko during the 2002-2005 mortgage boom, when the bank didn't diversify enough and instead allowed home loans to make up half of the company's $2 billion annual profits. The amount of loans designated as risky that National City is holding has actually grown in recent months from $17 billion to $25 billion - more than 20 percent of National City's portfolio.
David Enrich, Robin Sidel And Peter Lattman, Wall Street Journal, provide a bit of background about Corsair Corp LLC. As a result of the injection, Corsair will hold a 9.9% stake in National City. In 4 p.m. New York Stock Exchange composite trading Friday, National City shares fell 16 cents to $8.33. The stock has plunged 78% in the past year, shrinking the bank's market value to $5.3 billion. Launched by what is now J.P. Morgan Chase & Co. to invest in ailing financial institutions, Corsair is named after John Pierpont Morgan's yacht. Corsair, which operated as part of J.P. Morgan until 2006, is led by Nicholas Paumgarten, a former First Boston investment banker. The private-equity concern focuses exclusively on financial-services investing.
David Mildenberg and Elizabeth Hester, Bloomberg News, speculate on why it was important for National City to close this deal so urgently. Corsair's holdings include stakes in banks in Argentina, Brazil, Korea, Poland and Sweden. National City faced pressure to complete a transaction or discuss the status of negotiations before it reports its first- quarter results on April 22, said Scott Fine, a finance professor at Case Western Reserve University in Cleveland.
Well, at least that puts to rest the rumors about National City being bought off. That may be good news for Cleveland residents who are employees at National City, and won't have to worry about layoffs, but what does it say about Ohio's largest bank when no one wants to buy it even in a firesale? Besides, the story does not end here. They still have the First Quarter results to announce of April 22, and after that, there's a lot of cleaning up to do. If National City is still unable to shake off its subprime related woes, the axe may fall down again by the end of the next quarter. Only, next time, there won't be any speculation about possible buyers. Corsair and its group of investors will simply buyout the rest of the stock, take the bank apart and sell off the pieces at a premium to different buyers.
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