Monday, July 14, 2008
National City Tamping Down Market Rumors
In response to 'market rumors' National City has put out a press release intended to tamp down the rumors and reassure investors. "National City is experiencing no unusual depositor or creditor activity. As of the close of Friday's business, the bank maintained more than $12 billion of excess short-term liquidity. Further, as a result of our recent $7 billion capital raise, National City maintains one of the highest Tier I regulatory capital ratios among large banks."
This was prompted by an early Monday rout as Cleveland, Ohio based National City Corporation (NYSE: NCC, Investor Relations) dropped 27% to $3.21, was halted, and now its down 23.08% to $3.40, as of publishing. If they're not seeing any unusual activity at the bank, I'm guessing they will be, in the next few days, as the rumor mill moves in for the kill. Now before you start screaming FDIC, read a few more paragraphs. This isn't your standard bank in trouble story.
This has to more to do with their earnings report than with any new problems mushrooming beyond control. They did the exact same thing on April 21, just before their Q1 earnings report was due out on April 22. You can read all about it here. They rushed through a $7 billion financing deal with the equity group Corsair Capital LLC to compensate for their subprime mortgage losses, so the markets wouldn't be rattled. The deal gives Corsair a nearly 10% stake in National City.
And now, with the next quarter results due, in addition to denying any panic, they also announced a September 15 date for a special shareholder meeting to ratify the Corsair deal. Point is, Corsair already has a 9.9% stake, and they can easily increase it. Which they will, if necessary. Meaning that National City has a safety net, same as Countrywide had a BofA safety net. I don't want to predict what's going to happen with NCC in the next few days, but regardless, there's very little likelihood of banking regulators having to step in.
For the record, though, as of April 2008, National City was sitting on about $25 billion worth of 'risky' loans (20% of their portfolio), which will no doubt have increased in the last few months. And it won't be easy to wiggle out of this mess without showing substantial losses in the next few quarters. While I don't see the bank going down, there's a good chance that it might end up losing its independence, if they have to turn to Corsair for more help. If that happens, Corsair will seperate out the good from the bad, and there's buyers ready and waiting to pick up the pieces.
This was prompted by an early Monday rout as Cleveland, Ohio based National City Corporation (NYSE: NCC, Investor Relations) dropped 27% to $3.21, was halted, and now its down 23.08% to $3.40, as of publishing. If they're not seeing any unusual activity at the bank, I'm guessing they will be, in the next few days, as the rumor mill moves in for the kill. Now before you start screaming FDIC, read a few more paragraphs. This isn't your standard bank in trouble story.
This has to more to do with their earnings report than with any new problems mushrooming beyond control. They did the exact same thing on April 21, just before their Q1 earnings report was due out on April 22. You can read all about it here. They rushed through a $7 billion financing deal with the equity group Corsair Capital LLC to compensate for their subprime mortgage losses, so the markets wouldn't be rattled. The deal gives Corsair a nearly 10% stake in National City.
And now, with the next quarter results due, in addition to denying any panic, they also announced a September 15 date for a special shareholder meeting to ratify the Corsair deal. Point is, Corsair already has a 9.9% stake, and they can easily increase it. Which they will, if necessary. Meaning that National City has a safety net, same as Countrywide had a BofA safety net. I don't want to predict what's going to happen with NCC in the next few days, but regardless, there's very little likelihood of banking regulators having to step in.
For the record, though, as of April 2008, National City was sitting on about $25 billion worth of 'risky' loans (20% of their portfolio), which will no doubt have increased in the last few months. And it won't be easy to wiggle out of this mess without showing substantial losses in the next few quarters. While I don't see the bank going down, there's a good chance that it might end up losing its independence, if they have to turn to Corsair for more help. If that happens, Corsair will seperate out the good from the bad, and there's buyers ready and waiting to pick up the pieces.
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