National City says faces SEC probe

By Jonathan Stempel

NEW YORK (Reuters) - National City Corp NCC.N, a U.S. Midwest regional bank struggling with mortgage losses, said on Friday the U.S. Securities and Exchange Commission had opened an informal investigation into the company.

In its quarterly report filed with the agency, the Cleveland-based bank said the SEC's Chicago regional office notified it of the probe on June 30.

It said the SEC requested documents concerning its loan underwriting, dividends and bank regulatory matters, as well as the 2006 sale of its First Franklin Financial Corp subprime mortgage unit to Merrill Lynch & Co MER.N.

The bank said it would cooperate with the SEC.

Mounting real estate losses drove National City in April to raise $7 billion of dilutive capital from Corsair Capital LLC and other investors, and to slash its dividend twice in 2008.

The bank's shares have fallen 87 percent since March 2007.

"Given the volatility in the markets that we have experienced, as well as that in our stock price, it is not surprising" to receive the SEC notice, National City spokeswoman Kristen Baird Adams said.

"It has no impact on our ability to serve customers."

The bank believes the timing of the disclosure was appropriate, she said.

SEC spokesman John Nester declined to comment.

National City, which was heavily exposed to weak real estate markets in Michigan and Florida, ended June with a Tier-1 capital ratio of 11.08 percent.

The ratio measures a bank's ability to cover losses, and regulators say a ratio of 6 percent reflects a "well-capitalized" bank.

The bank has nevertheless been burdened with lower-quality mortgages that it kept when it sold First Franklin.

It has also been hurt by acquisitions in 2006 and early 2007 of two Florida banks, Harbor Florida Bancshares Inc and Fidelity Bankshares Inc, for a combined $2.1 billion.

Last month, National City reported a second-quarter loss of $1.76 billion, its fourth straight quarterly loss.