National City has $1.76 billion loss on loan write-offs

NEW YORK (Reuters) - Regional bank National City Corp NCC.N posted a $1.76 billion second-quarter loss on Thursday, hurt by soaring mortgage and real estate construction loan losses and a write-down for acquisitions.

The fourth straight quarterly loss for the Cleveland-based lender equaled $2.45 per share, and compared with a profit of $346.6 million, or 60 cents per share, a year earlier.

Excluding a $1.08 billion write-down of goodwill for acquisitions, the loss was 94 cents per share, compared with the average analyst forecast for a loss of 20 cents per share, according to Reuters Estimates.

National City operates mainly in the Midwest, and is the last of the nation's 10 largest banks and savings and loans to report quarterly results. Only Wachovia Corp WB.N, Washington Mutual Inc (WM.N) and Citigroup Inc (C.N) had bigger losses.

Mounting real estate losses, including in Florida and Michigan, 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 ended June with a Tier-1 capital ratio, which measures its ability to cover losses, of 11.08 percent. Regulators say 6 percent reflects a "well-capitalized" bank.

"We have no intention or plan, or need at this point, to raise additional capital," Chief Executive Peter Raskind said on a conference call with journalists.

National City shares were up 39 cents at $5.10 in morning trading. They began the year at $16.46.

Citigroup analyst Keith Horowitz called National City "a workout story," but said it now has a "strong capital position to handle problem assets." He rates National City a "buy."

The bank set aside $1.59 billion for loan losses, up from $145 million a year earlier, while net charge-offs increased to $740 million from $98 million. Nonperforming assets more than tripled to $3.13 billion.

National City said many charge-offs were in a $17.4 billion portfolio of businesses it has exited, including broker-sold home equity, subprime and residential construction loans.

It said it might face an additional $3.2 billion to $3.6 billion of charge-offs in this portfolio, which represents about 15 percent of the bank's loans. The bank ended June with 1,437 branches and $153.7 billion of assets.

SEEKING NEW FOCUS

National City has been burdened with lower-quality mortgages it kept when it sold its First Franklin Financial Corp subprime business to Merrill Lynch & Co MER.N in 2006.

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

The timing of those purchases was "unfortunate," Raskind said. "Florida is a real estate-based economy, and we purchased those institutions just before a historic sag. We do think the dynamics that drove growth in Florida will eventually return."

In June, National City said it had entered into memoranda of understanding with the Federal Reserve Bank of Cleveland and the Office of the Comptroller of the Currency concerning its asset quality and ability to manage capital.

The bank suffered deposit outflows following the July 11 collapse of IndyMac Bancorp Inc IDMC.PK, which prompted market speculation about which other banks might fail. Raskind said the withdrawals affected "quite a small percentage" of overall deposits, and that deposit flows have stabilized.

Raskind said on a conference call with analysts that the bank has no need to dispose of its more than $1 billion stake in credit card network Visa Inc (V.N) to raise capital. He also declined comment on a Wall Street Journal report that it might sell its Allegiant Asset Management Co unit.

Quarterly lending income fell 7 percent from a year earlier to $1.02 billion, while noninterest income tumbled 44 percent to $431 million. Expenses soared 92 percent to $2.28 billion.

Net interest margin fell to 2.97 percent from the first quarter's 3.18 percent as the deposit mix changed and bad loans increased. Chief Financial Officer Jeffrey Kelly said the margin should stabilize in the second half.

(Additional reporting by Neha Singh in Bangalore, Editing by Derek Caney, Gerald E. McCormick, Dave Zimmerman)