NEW YORK (Reuters) - National City Corp NCC.N shares have lost much of their value in the past year, but the idea that the large Midwest U.S. regional bank is on the brink of failure is “ridiculous” and “ludicrous,” the company’s treasurer said on Friday.
Investors long worried about banks’ prospects grew more concerned after Washington Mutual Inc (WM.N) late Thursday became the largest U.S. bank failure in U.S. history. Federal regulators seized the bank late Thursday and sold its deposits and most of its assets to JPMorgan Chase & Co (JPM.N) for $1.9 billion.
National City, based in Cleveland, has long been in investors’ crosshairs because of a portfolio of loans it is trying to whittle down. It has also been hurt by its acquisitions in 2006 and early 2007 of two banks in Florida, one of the states hardest hit by the nation’s housing crisis.
But Thomas Richlovsky, who is National City’s treasurer and will become its interim chief financial officer next week, said the bank has more than enough capital after raising $7 billion earlier this year.
“We have the capital to manage through the losses under severe stress scenarios,” he said. “We have the time and the capital and do not need to do any fire sales.”
In afternoon trading, National City shares were down $1.64, or 33 percent, at $3.35, after earlier falling as low as $2.06. Their 52-week high is $27.21, set last Oct 4.
“National City is the best-capitalized commercial bank in the industry, and the bank has shown no signs whatsoever of a flight of deposits,” Sanford C. Bernstein & Co analyst Kevin St. Pierre wrote. “We do not believe National City is the next Washington Mutual.”
Richlovsky said that as of June 30 National City had a $17.4 billion portfolio of loans tied to businesses it has exited, including broker-sold home equity, subprime and residential construction loans. It has reduced that portfolio by $1 billion to $1.5 billion, he said. The bank has projected losses of $3.2 billion to $3.6 billion on the loans.
Concern about potential further write-downs grew after JPMorgan said it would take a $31 billion write-down on Washington Mutual loans it bought.
Complicating this was concern over whether lawmakers in Washington would agree on a $700 billion financial sector bailout that could relieve many lenders of some troubled loans.
“JPMorgan did a smart thing, writing down the amount to the lowest number it could justify, because that gives it a clean slate,” Richlovsky said. “We have more than sufficient capital to manage through whatever is in the best interest of shareholders.”
Additional reporting by Dan Wilchins; editing by John Wallace