National City to cut 4,000 jobs

NEW YORK (Reuters) - National City Corp, a U.S. Midwest regional bank hard hit by the credit crisis, on Tuesday announced plans to slash 4,000 jobs and said rising reserves for soured mortgage and real estate construction loans led to its fifth straight quarterly loss.

The job cuts amount to 14 percent of the bank's workforce and are expected to take place over three years. They are part of an efficiency program designed to save $500 million to $600 million annually by 2011.

Shares of National City fell 17 cents to $2.75 in premarket trading.

Investors have pummeled the bank's shares, which fell as low as $1.25 on September 29, amid concern that mounting loan losses might cause National City to run short of capital, and perhaps even fail. Core deposits fell $5.5 billion in the three months ended September 30 to $85.6 billion, in part because depositors withdrew balances in excess of FDIC insurance limits.

National City has said repeatedly in recent weeks that it has enough capital to make it through the current credit cycle without doing fire sales of any assets. Chief Executive Peter Raskind said the bank would consider participating in U.S. Treasury Secretary Henry Paulson's plan to inject $250 billion into the banking system.

"We are not expecting any particular respite environmentally in the foreseeable future," Raskind said on a conference call. Still, he added, "We believe we'll emerge from this difficult environment as a much stronger organization."

National City's third-quarter net loss was $729 million, or $5.86 per share, and compared with a loss of $19 million, or 3 cents, a year earlier.

Results reflected a $4.4 billion preferred dividend paid in September as part of a $7 billion capital-raising completed in April from Corsair Capital LLC and other investors.

Excluding that item, the loss was 85 cents per share, according to Reuters Estimates, compared with analysts' average forecast for a loss of 37 cents per share. National City said that under a different accounting method, the quarterly loss would have been 37 cents per share.

National City set aside $1.18 billion for loan losses, up from $368 million a year earlier but down from $1.59 billion in the second quarter.

A majority of the increased reserve was tied to a $21 billion portfolio of home equity, subprime residential construction, automobile, marine and recreational vehicle loans that the bank is trying to exit. The portfolio was $17 billion three months earlier.

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 in 2006. It has also been hurt by its acquisitions in 2006 and early 2007 of two Florida banks.

It ended September with a Tier-1 capital ratio, which measures its ability to cover losses, of 10.98 percent. Regulators say 6 percent reflects a "well-capitalized" bank.

Assets fell to $145 billion from $153.7 billion three months earlier.

"National City continues to work down the liquidating portfolio and has more than adequate capital to absorb losses," wrote Keith Horowitz, an analyst at Citigroup Global Markets.

Shares of National City closed Monday at $2.92 on the New York Stock Exchange. The shares have fallen 82 percent this year, compared with a 35 percent drop in the KBW Bank Index.

(Editing by Derek Caney and John Wallace)