National City in talks with Fifth Third-sources

By Paritosh Bansal

NEW YORK (Reuters) - National City Corp NCC.N, the ninth-largest U.S. bank, is looking to sell itself and is in talks with more than one potential buyer, including Fifth Third Bancorp (FITB.O), people briefed on the matter said.

The talks are preliminary, the sources said.

Fifth Third spokeswoman Debra DeCourcy and National City spokeswoman Kristen Baird Adams declined to comment on Thursday.

Media reports have said for weeks that Cleveland-based National City was looking to be acquired under the strain of mounting mortgage losses, exposure to the hard-hit Ohio and Michigan real estate markets, and a badly timed foray into Florida.

A sale to a bank such as Fifth Third, which is based in Cincinnati, would help a combined company cut costs in a difficult environment, said Terry McEvoy, an analyst at Oppenheimer & Co.

"To cut expenses would give the combined company an ability the offset some of the pressures that the sector is facing today," McEvoy said.

The housing downturn has forced the bank to boost credit reserves and write down bad loans. National City lost $333 million in the fourth quarter.

In January, the bank sold more than $2 billion of securities, including $1.4 billion of convertible notes.

National City said on Tuesday it was exploring strategic alternatives, which often indicates a sale is coming. The bank said Goldman Sachs (GS.N), retained as a capital-raising adviser in January, would act as its strategic adviser.

A Goldman spokesman declined to comment.

The Wall Street Journal reported on Wednesday that National City was in talks for a buyout by Cleveland rival KeyCorp

(KEY.N).

National City is looking at a number of options, but a deal with KeyCorp could win a capital infusion from private equity firm Kohlberg Kravis Roberts & Co KKR.UL, sources told the newspaper.

"Both of those companies because of the overlap with National City would be able to cut costs," McEvoy said, referring to KeyCorp and Fifth Third. "Cutting costs would support a higher price should the one option National City decides be to sell out."

National City's shares were up 53 cents or 5.8 percent at $9.75 on the New York Stock Exchange in afternoon trading, while Fifth Third shares were up 5 cents at $22.68 on Nasdaq.

(Reporting by Paritosh Bansal; Editing by Gerald E. McCormick)