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Apr-22-2008National City Leads Lenders in Rush for New Capital (Update2)(topic overview)
CONTENTS:
- Corsair Capital, a relatively little-known New York private equity firm, jumped into the fray by pumping $US985 million into National City. (More...)
- The other $6 billion comes from new and current institutional shareholders. (More...)
- The rest of the $7 billion will come from several of National City's largest current institutional holders and others, the release said. (More...)
- National City may have many more problems than are readily apparent that suggest it may not be otherwise viable going forward. (More...)
- Since November, the bank was rumored to be talking merger with J.P. Morgan Chase, Ohio rivals KeyCorp and Fifth Third Bancorp., and Bank of Nova Scotia. (More...)
- Analysts were unimpressed with the proposal, which would see 126 million new shares issued at a vastly discounted price, and National's shares fell 28% in Monday trading. (More...)
- Please turn to slide 10 which provides an overview of first quarter performance for the $116 billion portfolio by segment. (More...)
- The payout was cut for the second time since January, when it dropped to 21 cents a share from 41 cents. (More...)
- Among the other investors alongside Corsair is MSD Capital LP, an investment firm formed to manage the capital of Dell Inc (DELL.O: Quote, Profile, Research ) Chief Executive Michael Dell, a source familiar with the situation said. (More...)
- The move, which may dilute existing shareholders by more than 50 percent, sent the stock plummeting almost 28 percent and drew complaints from investors who asked during a conference call whether there wasn't "a more palatable alternative.'' (More...)
- In a rights offering, anyone who owns shares can purchase more. (More...)
- A week after the second buyback was announced, the bank said first-quarter profits plunged by nearly one-third because of the slumping home loan sector. (More...)
- Incremental first lien charge-offs include the effect of higher loss severity assumptions. (More...)
- Chief Executive Officer Peter Raskind is scraping for capital after the bank's strategy of acquiring banks in Florida at the height U.S. real-estate boom backfired. (More...)
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Corsair Capital, a relatively little-known New York private equity firm, jumped into the fray by pumping $US985 million into National City. The infusion is Corsair's first in the U.S. banking industry, and the firm already has racked up a sizeable paper profit on its investment. In New York Stock Exchange trading, National City shares fell $US2.30, or 28 per cent, to $US6.03 - but still 21 per cent higher than the $US5-a-share price being paid by Corsair for its 9.9 per cent stake in the regional bank. While existing shareholders won't like seeing their holdings diluted, Corsair and other investors getting bargain-priced shares threw National City a financial lifeline just in time. The bank reported a first-quarter loss of $US171 million and slashed its dividend by 95 per cent to just a penny a share. National City also warned that loan delinquencies and charge-offs will keep rising, citing trouble in its home equity portfolio and small-business lending. "We are quite confident that this capital addition will give us the flexibility and capacity that we need to absorb the losses. that may be coming," National City chairman Peter Raskind said in an interview. [1] Shares of the Cleveland-based bank tumbled 26% in trading Monday after National City ( NCC, Fortune 500 ) lined up a $7 billion capital infusion from investors led by Corsair Capital, a New York-based private equity firm. The deal, along with National City's decision to slash its dividend for the second time this year, will bolster the bank's cushion against losses on its mortgage portfolio. The agreement makes National City the third big U.S. bank this month to come hat in hand to the market, after similar deals at big mortgage lenders Washington Mutual ( WM, Fortune 500 ) and Wachovia ( WB, Fortune 500 ).[2]
The deal includes $985 million in private equity capital from Corsair Capital and one other undisclosed private equity firm, and $6.015 billion in equity capital being purchased by other investors, including several of the company's current institutional investors. The company noted that it expects the capital infusion to increase its capital ratios 'well above the high end' of its targeted ranges. It said this includes its Tier 1 risk-based capital ratio, which will increase to 11.40% pro forma for this transaction from 6.65% at March 31, 2008. That pro forma ratio places the company 'well above its peer group,' National City (nyse: NCC - news - people ) said. National City said its board has approved a reduction in its common dividend to a penny per share from a prior payout of 21 cents a share.[3] The bank agreed to sell the investing group 126 million common shares at $5 apiece and $6.4 billion worth of preferred shares that effectively will convert to common stock at the same price. That 40% discount to Friday's closing price is steep even compared with the ones that prevailed at Washington Mutual (33%) and Wachovia (14%). Some observers are wondering how smart National City's new private equity investors will feel looking back at this deal in a year or so. "There is much uncertainty about the depth, breadth and timing of the credit downturn," former Wall Street executive Roger Ehrenberg writes at his Information Arbitrage blog. Like TPG, the private equity firm that led the $7 billion infusion at WaMu earlier this month, Corsair has deep roots in the banking industry.[2]
Washington Mutual, hit hard by rising delinquencies and defaults on mortgages, said about two weeks ago that it would receive $7 billion in capital from an investment group led by the private equity firm TPG. Banks both large and small have been forced to turn to outside investors to bolster their balance sheets, as their financial health has deteriorated. Investors like private equity firms are expressing growing interest in taking stakes in these companies. Wilbur L. Ross, the billionaire investor who seeks out distressed companies, said last week that he was raising money to buy stakes in savings and loan banks. The investment in National City comes at a steep cost to the bank and many of its existing shareholders. The plan involves a massive dilution of its current shareholders' holdings: The bank is issuing 126.2 million common shares, at $5 a share, to the investor group, as well as 63,690 preferred shares that will convert into 20,000 common shares each after shareholder approval.[4] NEW YORK (Reuters) - Subprime mortgage-hit National City (NCC.N: Quote, Profile, Research ), a large U.S. Midwest regional bank, is close to getting a $6-$7 billion injection from a group of investors led by private equity firm Corsair Capital, a source familiar with the transaction said on Sunday. National City racked up losses of more than $300 million in the fourth quarter of 2007 due to its exposure to risky mortgage assets and said earlier this month it was exploring strategic alternatives.[5] A source familiar with the transaction said on Sunday that subprime mortgage-hit National City (NCC.N: Quote, Profile, Research ), a large U.S. Midwest regional bank, is close to getting a $6 billion to $7 billion injection from a group of investors led by private equity firm Corsair Capital. "The stock market's gains last week, stock index futures' rebound to almost unchanged this morning, stable LIBOR, negative sentiment on the size of the Fed's prospective interest-rate cut next week, new supply from the Treasury of two- and five-year notes this week, plus a Fed Term Auction Facility (TAF) which will add to supply in the market, all of this is weighing," said John Spinello, chief fixed-income technical strategist at Jefferies.[6]
New York, NY (AHN)- New York private equity fund Corsair Capital will infuse $985 million in National City Corp, reports said. The Wall Street Journal reported Tuesday that Corsair's investment, its first in the United States, would give Corsair less than 10 percent of the Cleveland, OH National City. BBC said National City is raising $7 billion to improve its finances amid mounting losses due to bad loan exposures. It said the move involves the issuance of 126 million new shares.[7] National City's nightmare from getting into subprime lending with abandon is not over. Too many customers received loans without down payments or on scanty information about their creditworthiness. Unfortunately, the bank still holds many of those substandard, now delinquent, loans because it couldn't find anyone to buy them. As a result of its bad mortgage-related bets, National City reported a first-quarter loss of $171 million, or 27 cents a share, the third straight quarterly loss. That dismal result included $1.4 billion in capital it had to set aside to offset bad loans. The bank was so desperate for a rescue that selling 126 million shares to investors, led by Corsair Capital, at the bargain-basement price of $5 a share - a 40 percent discount from where the stock closed last week - was its best option.[8] The deal provides for Corsair Capital and certain other investors to receive five-year warrants with an exercise price of 115% of the common stock's average closing price over a five-day trading period with a cap of $8.50 per share. National City said Goldman Sachs (nyse: GS - news - people ) served as its financial advisor on the deal. The company also disclosed its first-quarter results, posting a net loss of $171 million, or 27 cents a share.[3]
National City Corp. announced yesterday it secured a $7 billion capital infusion from equity investors to help it survive the home mortgage crisis, at least temporarily quashing speculation the nation's 10th-largest bank would have to be sold. The move did not appease investors who sent the Cleveland-based company's stock tumbling 28 percent to its lowest level in about 17 years after the bank also posted a $171 million first-quarter loss and slashed its dividend.[9] CLEVELAND (AP) — National City Corp., a largely Midwestern bank reeling from steep mortgage losses, said Monday it had secured a $7 billion cash infusion from equity investors but slashed its dividend and reported a $171 million loss for the first quarter. Its shares sank almost 28 percent by early afternoon.[10] Monday, National City Corp. announced Monday it secured a $7 billion capital infusion from equity investors to try to survive the home mortgage crisis. The bank slashed its dividend and reported a $171 million loss for the first quarter.[11]
National City Corp. (NCC) Monday reported a first-quarter loss of $171 million, and said it will receive a $7 billion infusion of equity capital from a consortium of investors led by private equity firm Corsair Capital.[12] Corsair Capital, a private equity firm specializing in distressed financial companies, led the consortium with a $985 million investment. Others include some of the regional bank's largest institutional investors. Through the investment, National City will boost its tier-1 capital ratio, a measure of capital adquacy, to 11.4 percent from 6.65 percent on March 31.[4] NEW YORK (Reuters) - MSD Capital LP, an investment firm that manages capital of Michael Dell and his family, is one of the investors in National City Corp (NCC.N: Quote, Profile, Research ), a source familiar with the matter said on Monday. MSD Capital is a significant investor in the $985 million private equity capital component led by Corsair Capital, this person said.[13]
Corsair, a New York private equity firm, will take a 9.9 percent ownership share in the Cleveland-based bank. The firm will contribute $985 million in equity, and also receive a seat on National City's board, to which it plans to appoint its vice chairman, Richard Thornburgh.[14]
Fortune.com argues that it may be the private equity investors that finds themselves on the wrong end of the deal. The investment in National City comes at a steep cost to the bank and many of its existing shareholders. The plan involves a massive dilution of its current shareholders''' holdings: The bank is issuing 126.2 million common shares, at $5 a share, to the investor group, as well as 63,690 preferred shares that will convert into 20,000 common shares each after shareholder approval.[15] Shareholders - and that includes many current and retired employees whose 401(k) contributions got matched in company stock-must swallow a bitter pill. The enormous stake Corsair and others will take dilutes their holdings. This deal could keep the stock price, which lost another 27 percent Monday, under near-term pressure. And, for the second time in four months, the bank's board slashed the dividend - this time to a penny a share. This region could also feel ripple effects from the deal. As the new investors scout for ways to squeeze savings out of the bank, employment could drop. National City, known for its corporate generosity, probably will face pressure to scale back its community benevolence. It's crucial that this city keeps an enormous employer and corporate anchor. Some aspects of the bank's business continue to do well, such as its deposit growth. This drastic move gives the bank considerable breathing space to get its entire strategy back on track. Senior management must return National City to the sound principles that have characterized most of its long life.[8] The stock was upgraded to "buy'' from "sell'' by Deutsche Bank AG analysts including Mike Mayo, who wrote management "has shown more conservatism'' in cutting the dividend to 1 cent from 21 cents and selling the stake to Corsair. While National City's move was "incredibly painful'' for existing shareholders, management has "more incentive to run the company for the interests of the shareholders than at any time in its history,'' Mayo wrote. "We are not making any excuses for this company which has woefully underperformed on almost any measure,'' Mayo wrote. He said National City's management will be more aggressive about managing expenses. Royal Bank of Scotland said today it would sell $24 billion of shares in Europe's largest rights offering and cut its 2008 dividend to rebuild capital eroded by writedowns.[16] Shares of National City (NYSE: NCC) fell more than 27 percent, or $2.30, to close Monday at $6.03. National City has suffered through the subprime mortgage crisis, seeing its stock fall below $10 a share, after trading as high as $38.32 in the past year. The bank said Monday it is cutting its dividend to 1 cent per share, from 21 cents, payable May 16 to shareholders of record as of May 1. The bank said the capital infusion will raise its Tier 1 risk-based capital ratio to 11.4 percent pro forma from 6.65 percent as of March 31.[14] The balance is being purchased by other investors, including several current institutional stockholders. The balance of $6.0 billion is being purchased by other investors, including several of National City's largest current institutional shareholders, the bank said, without identifying those buyers. In the financing, National City will issue 126.2 million shares of common stock at $5 per share, which is about 40.0% below its $8.33 close on Friday. It will also issue 63,690 shares of certain contingent convertible perpetual non-cumulative preferred stock, which have a purchase price of $100,000 per share.[17]
Believe it or not, some savvy Wall Street deal makers see the beleaguered U.S. banking industry as a glass half-full. Cleveland-based National City Corp.' s announcement Monday that it is getting $7 billion in capital to shore up its balance sheet is the latest sign that private-equity firms think there is big money to be made by investing in banks pummeled by bad loans and the economy. Lured by rock-bottom stock prices and enough leverage to buy stakes at steep discounts to existing shareholders, private-equity firms are betting that their targets will emerge from the ongoing crisis in stronger shape, even.[18] National City was the latest in a string of major U.S. banks to report a first-quarter loss due to the fizzling housing market and say it has raised billions to shore up capital levels. The Cleveland-based bank will issue the equivalent of 1.4 billion shares of new stock for the cash infusion, thereby depleting existing shareholders' stake, and will lower its quarterly dividend to a penny from 21 cents.[19] The deal was larger than the $6 billion cash infusion The Wall Street Journal reported in Monday's edition that National City was discussing. On Monday, National City slashed its dividend to 1 cent from 21 cents to strengthen its capital situation and reported a $171 million, or 27 cents per share, first-quarter loss.[20] The company's shares fell 95 cents, or 2.5 percent, to close at $37.61. Cleveland-based National City reported that it got a $7 billion cash infusion from equity investors, lowered its dividend and posted a $171 million first-quarter loss.[21]
National City NCC on Sunday lined up $6 billion to $7 billion in capital from a group of private investors, according to published reports. The infusion of cash, which works out to about $5 a share, will allow the Cleveland-based bank, hit hard by its exposure to mortgage losses, to stay afloat.[22] NEW YORK -- All three major ratings agencies on Monday affirmed the investment-grade ratings of National City Corp., after the regional bank said it secured $7 billion of equity capital in an effort to fend off further mortgage-related losses. "The magnitude of National City's capital raise is sufficient to absorb any currently foreseeable losses in its most troubled portfolios, specifically residential construction and development, and the non-prime residential mortgage and national home equity books," said Moody's Investors Service.[23] April 21 (Bloomberg) -- National City Corp., Ohio's biggest bank and subprime lender, slumped in New York trading after it slashed the dividend to a penny and agreed to sell a $7 billion stake to investors led by Corsair Capital LLC at a 40 percent discount.[24] National City's agreement to raise $7 billion from an investor group led by Corsair Capital LLC, a private-equity firm controlled by JPMorgan Chase & Co., produced a triple whammy for holders of the Cleveland-based bank.[25] National City Corporation's stock took a beating Monday as investors worried about the dilution from the bank's $7 billion bailout by a consortium led by Corsair Capital.[15]
National City Corp.' s board has approved a $7 billion capital infusion that includes Corsair Capital LLC and a group of shareholders, the bank said Monday.[14] National City, Ohio'''s biggest bank and subprime lender, agreed to sell a $7 billion stake to a group led by Corsair Capital LLC yesterday, at a 40 percent discount to market price.[26]
Bank of America (NYSE:BAC) finished the day down 2.46% to $37.61 a share. National City Corp(NYSE:NCC) dropped to a 17-year low of $6.03 a share, down 28% today, on news that they lost $171 million in the first quarter and plan to raise $7 billion in capital to shore up its balance sheet.[27] CLEVELAND - National City Corp. said Monday that it secured $7 billion of equity capital to save the Midwest bank following steep mortgage losses, sending its share price into another dive.[28] Shares of National City Corp. touched a multiyear low Monday after the regional bank said it swung to a first-quarter loss and is raising $7 billion to shore up its capital base. Shares of National City fell $2.30, or 27.6 percent, to $6.03, having fallen as low as $5.90 earlier in the session Monday - their cheapest trade since the early 1990s. The bank is raising $7 billion to help shore up its capital base after being hit hard by deterioration in the mortgage and credit markets.[29] National City took on $7 billion in additional capital at a 40% discount to market price, sending shares tumbling as the beleagured bank looks to shake off bad mortgage bets and make it through the crisis.[26]
The parties were aiming to seal the deal by today. As envisioned, the plan will be the third huge cash infusion for a major U.S. bank this month, bringing the total to about $US22 billion. Like Washington Mutual and Wachovia, National City is offering its financial rescuers shares at prices substantially below the prevailing market price, while diluting the holdings of existing shareholders.[30] Analysts polled by Thomson Financial expected profits of 31 cents per share, on average. Those estimates typically exclude special items. The loss came as National City boosted its provision for loan losses to $1.4 billion, which was partially offset by redeeming stock from Visa's V initial public offering.[19] National City posted a net loss for the first-quarter of $171.0 million, or 27 cents per share, after a loan loss provision of about $1.4 billion, compared with a profit of $319.0 million, or 50 cents per share, in the prior year. Its board cut the common dividend to 1 cent per share from 21 cents.[17]
As you know, we announced on April 1st that we were evaluating a range of strategic alternatives for National City. After thorough exploration of a wide range of alternatives, last evening our board took two important actions: it approved a plan to increase our equity capital base by $7 billion and it also reduced this quarter'''s dividend to $0.01 per share.[31]
The troubled regional bank -- with branches in Florida -- found backers and will stay independent. It arranged for a seven billion dollar capital infusion from equity investors to try to cope with the home mortgage crisis, avoiding a widely rumored sale. While making the deal public yesterday, its stock tumbled to its lowest price in about 17 years to $6.03. The nation's 10th-largest bank, which operates largely in the Midwest, slashed its dividend to 1 cent per share, from 21 cents.[32] Although the stock plunged 28% yesterday to $6.03, Corsair was able to book a paper gain since it bought in at just $5 per share. These firms are hoping the fire sale prices allow them to ride out near-term trouble so sizeable returns on investment can be realized down the line. Minyan Peter, however, doubts the wisdom of their bets. With most of their current portfolio deals going south, and the prospect of any new leveraged buyout deals more than remote, firms are having to transform themselves quickly into vulture mode. With many private equity firms now public, suddenly quarter earnings pressure means something to these guys.[33]
The plan involves selling the shares at $US5 each to a group led by the private equity firm, Corsair Capital, the source said. National City, an Ohio bank, is expected to move up its earnings report to go along with the announcement.[34] Efforts to recapitalise the U.S. banking system took a crucial step forward as a group of mutual funds and hedge funds led by Corsair Capital, a little-known private equity firm, prepared to invest $7bn in National City, the 10th-biggest U.S. bank.[35]
NEW YORK, April 20 (Reuters) - A group of mutual funds and hedge funds led by Corsair Capital, a little-known private equity firm, are to invest between $7 billion and $8 billion into National City(NCC.N: Quote, Profile, Research ), the 10th-largest bank in the United States, the Financial Times reported on its Web site on Sunday.[36] Despite mounting data demonstrating financial woes are far from over, private equity firms are beginning to nibble at pieces of troubled banks. National City ( NCC ), who yesterday announced that it sold $7 billion in equity to shore up its balance sheet, is the latest in a string of banks to raise capital in this manner. Two weeks ago, Washington Mutual ( WM ) received $7 billion from private equity firm TPG and others. Last Monday, Wachovia ( WB ) also took in $7 billion to shield it from future writedowns.[33] CLEVELAND-based National City's announcement that it is getting $US7 billion ($7.4 billion) in capital to shore up its balance sheet is the latest sign that private equity firms think there is big money to be made by investing in banks pummelled by bad loans and the economy.[1]
Fortunately, raising $7 billion in equity from a group of investors will let the headquarters of the nation's 10th-largest bank stay in the city where it was founded more than 150 years ago. It will also let National City soothe regulators, who had been growing increasingly antsy about the amount of capital reserves the bank has available for shoring up shaky loans.[8] With other investors, the group will infuse $7 billion cash into National City to stabilize the bank's capital base, hopefully allowing it to weather any further bad-loan exposure and ride out the economic downturn.[37] The National City Corporation, the nation's tenth-largest bank, said on Monday that it plans to raise $7 billion from a group of investors as it seeks to shore up its balance sheet against continued trouble in the mortgage market.[4]
NEW YORK (Reuters) - National City Corp (NCC.N: Quote, Profile, Research ), a large U.S. Midwest bank, said on Monday it is raising $7 billion and slashed its dividend after mortgage and home equity problems led to its third straight quarterly loss.[38] Michael Dell is chief executive of computer maker Dell Inc (DELL.O: Quote, Profile, Research ). National City, a large U.S. Midwest regional bank, said it is raising $7 billion of capital, slashed its dividend and posted a first-quarter loss.[13]
National City is set to join the ranks of the recapitalized. The bank said Monday that Corsair Capital would lead a $7.0 billion capital infusion to steady its finances. The company also posted a first-quarter loss and reduced its dividend.[17] The Cleveland-based company said Monday it will get the infusion from Corsair Capital LLC and other investors, but also lost money in the first quarter. Deutsche Bank analyst Mike Mayo said the results were "bad but not out of the realm of our expectations" and raised his rating to "Buy" from "Sell." The new capital has helped put National City on "steadier ground" and "seems like enough to manage its loan problems," Mayo said.[39] The Wall Street Journal said Sunday that Cleveland-based National City, which operates banks in the Midwest, was in talks with investors including Corsair Capital LLC to pay about $5 per share.[40] Private-equity firm Corsair Capital is contributing $985 million, with the remaining $6.02 billion coming from other investors, including some of National City's biggest institutional shareholders.[19] Earlier Monday, National City said it is raising $7 billion, $985 million of which it will get from New York-based Corsair Capital LLC, which has experience with troubled financial institutions.[23] Bank of America's results came as National City, Ohio's biggest bank and sub-prime lender, negotiated a capital injection of $6 billion to $7 billion from a consortium led by Corsair Capital, the New York hedge fund.[41]
Coupled with the $7 billion of new capital, we believe the total result is clearly in the best interest of shareholders and is indeed transformative for National City. With these actions we have stabilized and protected our investment grade debt ratings and we'''ve made a very powerful statement about our ongoing strength and stability. Over the last few months in view of market concerns of our real estate exposures and rating agency actions we found ourselves playing defense, defending against rumors and market speculation -- much of it false -- which was distracting to both the employees and customers. Pro forma for this transaction, our tier 1 capital ratio increases to 11.4%, which will be among the highest, if not the highest, among large banks by a fairly substantial margin.[31] National City was off $2.30, or 27.6 per cent, at $6.03. Separately, it emerged last night that Citigroup had tapped Hewlett Packard (HP), the information technology company, for advice on how best to resist mounting calls from its shareholders to break the crisis-stricken investment and retail banking group into two businesses. Citigroup holds its annual shareholders' meeting today. It is understood that senior executives at Citigroup, which has suffered a $32 billion hit from the credit crunch, have spoken to their counterparts at HP to find out how they managed to resist calls from shareholders to spin off its computer operation from the rest of the group. Talks with HP are understood to centre around how Citigroup could use economies of scale between the bank's two main units, as HP did between its PC group and the rest of its business, to increase efficiency and strengthen the case against a split.[41]
The Paris-based bank raised 5.54 billion euros ($8.5 billion) from holders last month. National City rejected this approach in favor of selling common and convertible preferred shares to the group headed by Corsair, a 15-year-old New York-based firm that owns stakes in financial companies worldwide.[25] If the convertible preferred stock is converted, the new stock will total 1.4 billion shares; National City only has 633.4 million common shares outstanding now. Bove said this is the third major capital raise the bank has done, which proves there is a fairly large source of capital for the banking industry in general. "In the case of National City, there's a recognition this is a cyclical industry, the company is at the wrong end of the cycle, and it will recover." National City and the banking industry in general have experienced normal cyclical setbacks on a regular basis, Bove said, and when those cycles end earnings tend to surge.[17] The capital infusion calls for National City to issue about 126.2 million common shares at a price of $5 each and a total of 63,690 shares of contingent convertible perpetual non-cumulative preferred stock at purchase price and liquidation preference of $100,000 per share. Following certain approvals, these preferred shares will automatically convert into 20,000 shares of common stock each.[3] National City said it lost $171 million, or 27 cents per share, during the first quarter, compared with earnings of $319 million, or 50 cents per share, during the same period in 2007.[29] National City also announced a first-quarter loss of $171 million, or 27 cents per share, versus a profit of $319 million, or 50 cents per share, a year earlier.[42] National City lost $333 million, or 53 cents per share, in the fourth quarter of 2007. It said it lost 27 cents per share in the January-March period of 2008.[9]
Raskind said the latest cut -- to 1 cent a share, payable May 16 -- was "not a pleasant decision." Shareholders such as the McCune Foundation, perhaps the Pittsburgh region's biggest holder of National City stock, will be hurt. The foundation, which owns 4.8 million shares, has seen the value of its shares drop about $130 million in the past year.[43] National City is offering 126.2 million shares at $5 to raise about $631 million, and another 63,690 shares of preferred stock -- each convertible to 20,000 shares of common stock -- for $100,000 a share to raise another $6.37 billion.[42] National City, the nation's 10th-largest bank, plans to raise at least $US6 billion ($6.4 billion) from a sale of common shares to a consortium of investors after failing to sell itself, a source briefed on the negotiations said on Sunday night.[34]
In late trading, the shares were down $2.23, or 26.8 percent, at $6.10. National City joins banks such as Citigroup Inc (C.N: Quote, Profile, Research ), Wachovia Corp (WB.N: Quote, Profile, Research ) and Washington Mutual Inc (WM.N: Quote, Profile, Research ) that have raised capital and cut dividends after losses from mortgages and other debt forced them to shore up their balance sheets.[38] "We found ourselves on the defense against rumors and market speculation," National City chief executive officer Peter Raskind said in a conference call with analysts. The capital infusion will help stabilize National City, he said. "It reassures customers we are here for the long haul," he said. National City is also cutting its dividend to 1 cent a share from 21 cents a share to help strengthen its capital position. It is raising money amid deterioration in the credit and mortgage markets that has plagued banks since the middle of 2007 and cut into capital positions.[28]
The remaining balance will come from other investors, including current institutional shareholders. National City is also cutting its dividend to 1 cent per share from 21 cents per share to help strengthen its capital position.[10] The Corsair-led consortium will also receive warrants with a maximum exercise price of $8.50 a share, which can also be exercised after shareholder approval. National City also said that it would slash its dividend to a penny a share, down from 21 cents a share.[4]
National City (NYSE: NCC) also on Monday announced a deal for a $7 billion cash infusion from shareholders and a private equity firm.[44] NEW YORK -- National City Corp.' s reported plan to secure about $6 billion in cash from a private equity firm would significantly dilute existing shareholder value, but allow the company to move forward, analysts said Monday.[40]
Corsair's investment in National City comes just weeks after Washington Mutual, the nation's largest thrift, received $US7 billion from private equity firm TPG and other large investors.[1] The Wall Street Journal reports private equity firm Corsair Capital LLC bought $985 million of National City's equity offering.[33] For 15 years, Corsair Capital has tromped through Argentina, Poland and South Korea nailing down banking deals. It landed one in the U.S.: a $985 million investment in National City Corp., giving it just less than 10% of the struggling Cleveland bank.[37] National City said the cash infusion includes $985 million from New York City-based private-equity firm Corsair Capital.[20] National City also said Monday that New York-based Corsair Capital LLC has committed to investing $985 million.[42]
NEW YORK (Thomson Financial) - National City Corp. said its board has approved a plan to raising roughly $7 billion worth of additional equity capital through the sale of common and preferred stock and warrants.[3] Oh, and in reading about National City over the weekend, a timeline of the crisis showed '''Ten ways National City could have avoided trouble.''' Not buy back stock in early 2007 National City bought back more than $3 billion worth of its own stock in early 2007, when the price was at its highest in years and near its highest level ever (it hit an all-time high of $39.44 in October 2004). The buyback came in two waves'''with the second approved by the board of directors in April 2007, just as the bank was gearing up to disclose that its first-quarter financial results weren't all that good.[45]
At the end of the latest quarter, the bank's allowance for loan losses - reflecting expected losses on residential real estate loans - was $2.6 billion, or 2.23% of the portfolio. That's double the year-ago level of 1.11%. National City said on its conference call Monday that it expects $3 billion in losses on its home-equity and nonprime losses in the next year and a half. National City's problems go well beyond the economic pain being felt in its Midwest base, however.[2] The bank's quarterly earnings announcement, moved up one day, showed some of why National City sought the outside investment. The firm said its loss stemmed mostly from a $1.4 billion reserve meant to guard against losses in its mortgage-lending business. That figure was only partially offset by $532 million in proceeds from the initial public offering of Visa, the credit-card giant.[4]
Deterioration in broker-sourced national home equity, the non-prime mortgage book and the residential real estate construction firm portfolios exceeded expectations, resulting in higher first quarter charge-offs and provision charges. Net charge-offs in the quarter included approximately $53 million related to adopting new policies that accelerate loss recognition in the non-prime portfolio and $12 million of charge-offs recognized in the branch home equity portfolio as acquired portfolios were trued up when they were converted to National City application systems. Excluding the effect of these items, the first quarter charge-off rate in the branch home equity portfolio was 77 basis points and 6.35% in non-prime mortgage.[31] National City set aside $1.4 billion in the first quarter to cover bad loans, more than double the $691 million set aside in the fourth quarter of 2007.[24] National City's net charge-offs were $538 million in the first quarter, versus $147 million a year ago, and nonperforming assets grew to $2.3 billion from $801 million during that period.[44]
National City Corp. slashed its dividend to a penny on Monday and secured $7 billion in capital from an investment group to strengthen itself after a mortgage-lending mess almost drove the bank into a merger.[43] Updated from 2:20 p.m. EDT National City NCC said Monday it no longer is considering a merger and instead has raised $7 billion in equity and plans to drastically cut its quarterly dividend to strengthen depleted capital levels.[19] In two major moves to bolster its capital reserves, National City Corp.'s board has approved a $7 billion capital infusion and a 95 percent cut to its quarterly dividend.[42] In a move to shore up its capital situation, National City board approved a $7 billion cash infusion and slashed its dividend Monday morning.[20]
AFTER weeks of searching for a way to ease the financial distress caused by the mortgage rout, National City Corp is now closing in on a capital infusion of more than $US6 billion ($6.4 billion) from a private-equity firm and a number of large shareholders, according to people familiar with the matter.[30] TheStreet.com's Jim Cramer says this lender gave money to anyone with a pulse, and the shareholders are left holding the bag. For pure laughs, go read the National City (NYSE: NCC ) ( Cramer's Take ) conference call yesterday, the one where they destroyed what was remaining of their common shareholder base with the partial takeunder by Corsair, an unknown private-equity fund that surfaced to inject $7 billion to save the bank.[46] NEW YORK -- Analysts upgraded and cut price targets on National City Corp. Tuesday as Wall Street weighed in on the bank's first-quarter loss and decision to raise $7 billion.[39] National City fell $2.30, or 28 percent, to $6.03 at 4:15 p.m. in New York Stock Exchange composite trading after the Cleveland-based company cut the dividend from 21 cents and reported a third straight quarterly loss.[24] National City rose 6.1 percent to $6.40 in 11:12 a.m. New York Stock Exchange composite trading today after dropping more than 80 percent in the past 12 months.[16]
About 4pm at the New York Stock Exchange last Friday, National City shares had fallen US16c to $US8.33.[30]
The lender's stock was little changed today, falling 1 cent to $11.42 at 11:13 a.m. New York time. First Horizon National Corp., Tennessee's largest bank, said April 17 its first-quarter provision for loan losses rose more than sevenfold to $240 million from $28.5 million a year earlier. The loan portfolio has "significant exposure to construction and home-equity loans, two areas we expect to remain under pressure,'' Roberts wrote in her report.[16] A host of leading financial institutions have been forced to inject fresh capital into their balance sheets to compensate for multi-billion dollar losses suffered in failed home loans and high-risk mortgage-backed investments. Those worst affected by the slump in the housing market and the subsequent turmoil in credit markets have included Merrill Lynch, Citigroup and Wachovia. National suffered its third successive quarterly loss in the first three months of the year, losing $171m during the period. It blamed the setback on the brittle state of the housing market in its home state of Ohio as well as in Florida and Illinois. Although the loss was less than the $333m reverse it suffered in the final quarter of last year, the firm warned that the home loan market remained "difficult" and announced that it was cutting its dividend payout to shareholders.[47] The loss was primarily the result of the bank setting aside $1.4 billion to cover loan losses during the quarter, compared with loss reserves of just $122 million during the year-ago period. The bank is also slashing its dividend to 1 cent from 21 cents to preserve capital.[29] Shares fell 85 cents, or 10.2 percent, to $7.48. Bank of America Corp. said Monday its profit fell 77 percent in the first quarter, hurt by trading losses and a $3.3 billion increase in reserves for problem loans.[48] In the first quarter a year ago, the bank earned $319 million, or 50 cents a share. Its shares had dropped about 75 percent in the past year, indicating investors' concerns and making it a more viable acquisition target.[28] The plan also involves slashing the bank's dividend and a big dilution of current shareholders. The bank, based in Cleveland, also reported a loss of $171 million for its first quarter, amounting to 27 cents a share.[4] The bank reported a net loss of $171 million for the first quarter, or 27 cents a share, compared to a net loss of $333 million, or 53 cents a share, during the fourth quarter of 2007.[12] The bank lost $171 million, or 27 cents per share, in the first quarter, compared with a profit of $319 million, or 50 cents per share, in the year-ago period.[23] A year earlier, it earned $319 million, or 50 cents per share, in the quarter. Analysts polled by Thomson Financial expected on average a profit of 31 cents per share for this year's first quarter. Its shares fell $2.30 to close yesterday at $6.03 after sinking to a 52-week low of $5.92 earlier in the session. Its shares are about 85 percent below their high for the past year. The Associated Press' M.R. Kropko and the Post-Gazette's Dan Fitzpatrick contributed to this report.[9]
"We found ourselves on the defense against rumors and market speculation," Raskind said in Monday's conference call. It is raising money amid deterioration in the credit and mortgage markets that has plagued banks since the middle of 2007 and cut into capital positions. The Cleveland-based bank reported earlier this year that it lost $333 million, or 53 cents per share, in the fourth quarter of 2007. It said it lost 27 cents per share in the January-March period.[10] The bank posted a net loss of $171 million, or 27 cents per share, compared to net income of $319 million, or 50 cents per share, in the year-ago quarter.[44] The $171 million quarterly loss equaled 27 cents per share. That's on top of a $333 million loss in the October-December quarter.[43]
The company said Monday it lost $171 million, or 27 cents per share, last quarter, compared with earnings of $319 million, or 50 cents per share, a year earlier.[19]
The bank reported a first-quarter net loss of $171 million, or 27 cents a share, compared with profit of $319 million, or 50 cents, a year earlier, the company said in a statement today. It lost more than $300 million in the second half of 2007. "There's no question this transaction is substantially dilutive,'' Raskind said on a conference call today. He said the bank needed to quickly stabilize its debt rating, quell market rumors of insolvency and gain flexibility to deal with problem assets.[24]
National City's shares fell $2.30 to close at $6.03 after sinking to a 52-week low of $5.92 earlier in the session. Its shares are about 85 percent below their high for the past year, which rendered it an acquisition target. It hired investment bank Goldman Sachs last month to look at such alternatives.[43] Despite hopes the investment will help the Cleveland-based bank's balance sheet, shares of National City (NCC) fell 16% as the deal calls for the issuing of more stock, a move that will dilute current shareholder value.[20] Then again, the sale can't proceed unless current holders approve proposals to raise the limit on authorized shares and to make the preferred convertible. They also have to agree on the terms of warrants, exercisable for additional stock, that the investor group will receive in the deal. National City intends to call a special meeting to vote on these plans.[25]
The stock was trading above $37 a year ago. Such a deal would likely see the investors -- which number more than a dozen names -- end up with a stake of around 50 percent in Cleveland-based National City, with Corsair owning around 9.9 percent, the source said.[5]
National City plans to raise $6.37 billion selling convertible securities to investors including Corsair, a private- equity firm founded in 1993 by JPMorgan Chase & Co. and run by executives including former Credit Suisse banker Richard Thornburgh.[24] In most LBOs, private equity firms buy the entire company, load it up with debt, and slash costs before taking it public or selling it to other investors. Corsair and TPG will each hold one board seat in their National City and Washington Mutual deals.[1]
If Bank of Nova Scotia is going to move into the U.S. banking sector it will not be by way of National City Corp. Cleveland-based NCC was in play after running into trouble because of its loan portfolio, and Scotiabank was one of a number of possible bidders poring over the bank's books. That process is now over, as 1,400-branch NCC has announced it is raising US$7-billion in new funds with the Canadian bank not expected to be among the investors. "This strategic raising of equity capital provides NCC with the financial flexibility to continue investing in and growing our core businesses," said NCC chief executive Peter Raskind.[49] April 22 (Bloomberg) -- National City Corp. joined Wachovia Corp. and Washington Mutual Inc. to tap what KBW Inc. calls "an abundance'' of capital, after losses tied to slumping home prices made U.S. financial firms a bargain for new investors.[16]
U.S. bank National City Corporation is seeking to raise $7bn ('3.5bn) from investors to shore up its finances after bad home-loan losses mounted.[47]
National City, Ohio's largest bank holding company with assets of $150 million, was heavily exposed to the nation's troubled mortgage and housing woes, but it has cut jobs and moved away from broker-originated subprime lending. On Jan. 2, National City cut its dividend 49 percent and disclosed it was shutting down its wholesale mortgage division, eliminating 900 jobs, due to weakened housing and credit markets.[10] The potential infusion will dilute the company's equity base, which stood at $13.4 billion at the end of last year, yet it will let National City "fight another day," BMO Capital Markets analyst Lana Chan said in a note to clients.[40] "Shareholders continue to get penalized,'' said Gerard Cassidy, a Portland, Maine-based analyst at RBC Capital Markets, in an interview yesterday. "It's another major company going to the capital markets to enable them to survive in this incredibly deflationary environment.'' National City lost about 84 percent of its market value in the past year and ranks as the worst performer in the 24-member KBW Bank Index during the past 12 months.[24] National City Chief Executive Officer Peter Raskind told The Associated Press in an interview that the bank's board explored a wide range of options and unanimously concluded that the capital infusion was in the best interests of shareholders.[9]
Corsair Capital Vice Chairman Richard Thornburgh, who will represent the company on National City's board, said the bank has strong core services.[10] The firm was was part of JPMorgan Chase ( JPM, Fortune 500 ) before it was spun out of the giant bank back in 2005. The firm, which has focused since its 1993 startup on financial services investments, is already emphasizing that it's not expecting a quick turnaround at National City. "Our decision to make a long-term investment in National City reflects our recognition of the company's important role as a leading provider of core banking services to its many customers," said Corsair Vice Chairman Richard E. Thornburgh, who is joining the National City board, "and our confidence in the potential of National City to achieve enhanced value for its customers, stockholders and employees in the future."[2]
Corsair will end up with a 9.9% stake in the bank, and Corsair Vice Chairman Richard Thornburgh reportedly will take a seat on National City's board of directors. The Plain Dealer also reports that National City will cut its quarterly dividend to a penny a share, down from the 21 cents it lowered the payment to in January from a then-41-cent payout.[22]
National City shares fell 16% to $6.98 on Monday after the company'''s board approved the deal.[35] Investors reacted swiftly, taking back a quarter of National City's market value in recent trading. Its shares plunged $2.22, or 26.7%, to $6.11.[19] The warrants have an exercise price of 115.0% of National City's average closing price for the five-day trading period beginning April 21, with a cap of $8.50 per share.[17] Corsair and the other investors will also receive five-year warrants with an exercise price of 115 percent of the bank's average closing price for the five-day trading period beginning Monday, with a cap of $8.50 per share.[14]
Washington Mutual, hit hard by rising delinquencies and defaults on mortgages, said about two weeks ago that it would receive $US7 billion in capital from an investment group led by the private equity firm TPG. Banks both large and small have had to turn to outside investors to bolster their balance sheets, as their financial health has deteriorated. Investors such as private equity firms are expressing growing interest in taking stakes in these companies. Wilbur Ross, the billionaire investor who seeks out distressed companies, said last week that he was raising money to buy stakes in savings and loan banks.[34] America's second-biggest bank set aside $6.01 billion for bad loans, mainly relating to mortgages and second mortgages, as the number of defaults continued to rise. It also recorded a $1.47 billion writedown on its portfolio of collateralised debt obligations (CDOs) -- complex pools of asset-backed securities -- and a $439 million writedown on leveraged loans to finance private equity deals. Its writedown comes after a week in which Citigroup announced a hit of $15.2 billion from the credit crunch and Merrill a $6.5 billion writedown.[41]
The other $6 billion comes from new and current institutional shareholders. In exchange, the investors receive 126.2 million shares of common stock at $5 a share, plus other securities that they can convert to common stock in a few years. [43] The balance of the funds, more than $6 billion, will be contributed by shareholders, including several large institutional investors, National City said in a release.[14] The remainder is being sold to investors, including some of National City's largest institutional shareholders, the bank said.[24]
Shares of diversified financial services companies closed mostly lower on Monday after disappointing first-quarter financial reports from both Bank of America Corp. and regional bank National City Corp. rattled investors.[21] Financial institutions led premarket activity Monday as National City, Bank of America and Wells Fargo shares moved lower.[48]
A big local stockholder is the McCune Foundation, which owns 4.83 million shares of National City. That stake dropped in value yesterday to $29.1 million -- compared with $121 million at the end of fiscal 2007 (last September) and $176 million at the end of fiscal 2006.[9] National City took a loan-loss provision of $1.4 billion for the quarter, compared to $122 million in first-quarter 2007. That helped offset a $530 million gain from the sale of its stake in Visa Inc. (NYSE: V) during the latter's initial public offering in March.[44]
Merrill Lynch agreed to acquire National City's First Franklin Financial Corp., which originated subprime home mortgages, for $1.3 billion at the height of the real estate boom.[11] The latest results include $1.4 billion in loan-loss provisions. National City was badly damaged by the subprime debacle, with its stock losing more than three-quarters of its value over the past year.[20] Each share of preferred stock will automatically convert into 20,000 common shares. National City stock has lost about 80 percent of its value over the past year as the company grappled with exposure to subprime mortgages and its decision to expand into Florida's housing market just before it took a turn for the worse.[19] The problems of Bank of America and National City undermined confidence that banks are overcoming the sub-prime mortgage market's collapse and helped to send the U.S. stock market down after a week in which all the major indices rose more than 4 per cent.[41] Founded in 1845, National City played a major role in Ohio's rise as an industrial superpower. It now ranks tenth in assets among U.S. banks, and has more than 1400 branches in nine states. National City was staggered by the mortgage crisis, which has depleted its capital and left its balance sheet littered with troubled assets. Near the height of the housing boom, National City made two pricey acquisitions in Florida that have deepened its problems. Regulators have been prodding National City officials to either replenish its capital base or find a buyer.[30]
The collapse of the subprime mortgage market and the deterioration of the credit market led Merrill to announce last month that it would stop funding loans at the unit and pursue a sale of the business. The indemnification claim notice, which was was dated April 10, alleges that National City Bank "breached certain representations or warranties" in the acquisition agreement "surrounding FF Mortgage Company's alleged losses associated with its claimed repurchase of loans."[11] Whatever shape an eventual federal action takes, it might be expected to slow the decline in house prices and therefore reduce the defaults and delinquencies that leave big lenders nursing hefty loan losses. For now, legislators don't appear eager to undertake a costly homeowner-relief effort - which means that banks such as National City can expect to see house prices continuing to fall and mortgage defaults rising.[2]
In a sign that the turmoil in the U.S. banking industry has made even astute acquirers leery, numerous banks looked closely at National City and walked away without bidding. KeyCorp and Fifth Third Bancorp both backed away a couple of weeks ago after conducting due diligence, informed sources said. Under accounting rules, any buyer is required to write down the value of National City's loan portfolio, resulting in a large financial hit to the buyer's balance sheet, and this has proved to be an insurmountable hurdle.[30] National City ranked among the 10 biggest originators of loans to people with poor credit histories in 2006. The lender sold its subprime loan unit, First Franklin Financial, at the end of that year to Merrill Lynch & Co., where it contributed to a record loss at the New York-based securities firm.[24] The New York firm will become National City's largest stockholder, with a 9.9 percent share plus a seat on the board of directors.[43] The restructuring, decided at a board meeting Sunday night, means National City is unlikely to be swallowed by another bank as had been rumored, one analyst said. "They won't be on the auction block for some time to come," said Frank Barkocy, research director for Mendon Capital Advisors in New York. "I think the likelihood they'd do (a merger) now is diminished."[43] National City Bank's huge infusion of capital is the kind of good news a pa tient gets when the doctor tells him he should recover, but it will be a while before he feels well again.[8] National City was reportedly looking to sell itself and has now turned to opportunistic Corsair Capital. It'''s interesting to see these banks eviscerated by these capital infusions.[26] The paper reports that New York-based Corsair Capital, a spinoff of JPMorgan Chase JPM, will serve as the lead investor of a group of more than a dozen others that will altogether own about 50% of National City.[22] If a deal is struck, it could be announced as early as Monday, the source said. Such a deal would likely see the investors end up with a stake of around 50 percent in National City, with Corsair owning around 9.9 percent, the source said.[50] Under the terms of the deal being discussed, which could be announced as early as today, Corsair would get a 9.9 per cent stake in National City, America's tenth-largest bank.[41] As part of the National City deal, Corsair partner Richard Thornburgh is expected to join the bank's board.[30] Corsair's Richard Thornburgh (left, joining the bank's board), Chairman Nicholas Paumgarten and John Pierpont Morgan's yacht Corsair III, which is also the name of the fund that invested in National City. "This was the reason the fund was established in the first place," said Ignacio Jayanti, Corsair's president.[37] As in National City, Corsair acquired a large minority stake in Swedbank and took a position on the board. "The volume is now turned up and the focus has shifted to the United States, but it's really the same story," said Corsair Chairman Nicholas Paumgarten, a former First Boston investment banker who joined J.P. Morgan in 1992 to run Corsair.[37]
Bank chairman Peter Raskind was quoted by BBC as saying that Corsair's investment was a vote of confidence in the firm's long-term prospects for National City.[7] Corsair and JPMorgan parted ways in 2006. Other private equity firms considered National City but decided against an investment, the source said.[34] The private equity firm, named after J. Pierpont Morgan's yacht, parted ways with today's JPMorgan Chase in 2006. Other private equity firms took a look at National City but decided against an investment, according to a person briefed on the negotiations.[4]
To raise funds, National is selling a stake to private equity firm Corsair and issuing shares to other investors. It is the latest in a long line of U.S. banks forced to raise fresh finance.[47] The bank's shares plummeted after it agreed to sell a stake at a discount to private equity firm Corsair Capital and other investors, diluting existing shareholdings.[38]
Of the $7 billion invested, $985 million comes from Corsair Capital LLC, a private-equity firm that buys stakes in troubled banks.[43] The nation's 10th-largest bank said it has secured $985 million from New York-based Corsair Capital LLC, which has experience with troubled financial institutions internationally.[10]
Private equity firm Corsair Capital will contribute $985 million to the capital raise.[29] Corsair, which is leading a group of investors, and one other private equity investor will invest $985 million, with the balance from other investors, including several current institutional stockholders.[38] Behind Corsair'''s investment of $985 million will be just over $6 billion of equity issued to other investors, including many of our largest institutional stockholders. The response by these investors to the offering was very strong.[31]
Wall Street analysts say the Bank of America could need to raise as much as $US10 billion. Selling its stake in the Chinese Construction Bank is a more palatable option since it would not erode the value of shares held by investors, the source briefed on the matter said. It is understood the Bank of America could have a "big unrealised gain" on its China investment.[34]
The bank will issue 126.2 million shares of common stock, at a purchase price of $5 per share, as well as 63,690 shares of preferred stock, at $100,000 per share. Each of those shares will convert into 20,000 shares of common stock, subject to approvals and adjustments.[14] The nation's 10th-largest bank also announced a $171 million first-quarter loss, and its stock hit a one-year low Monday, closing down $2.30, or 28 percent, at $6.03 a share.[28]
First Horizon's stock has fallen 70 percent in the previous 12 months, and IndyMac is down more than 85 percent. Wachovia, the fourth-largest U.S. bank, raised more than $8 billion earlier this month -- $1 billion more than first announced -- in a stock offering after bad home loans in California triggered a first-quarter loss.[16] Private equity firms raised about $US550 billion of capital in 2007, adding roughly $US150 billion more in the first quarter of 2008, according to data provider Private Equity Intelligence.[1]
Bank of America reported a hit of nearly $8 billion (£4 billion) from the credit crunch in the first quarter, which reduced its profit for the period by 77 per cent to $1.21 billion.[41] The stock has plunged 78 per cent in the past year, shrinking the bank's market value to $US5.3 billion.[30] Last week, Wachovia, the country'''s fourth-largest bank, announced plans to raise about $7 billion, with the potential for another $500 million, through the issuance of common and preferred stock.[4] The Cleveland, Ohio-based bank (NYSE: NCC) will raise the $7 billion by selling additional stock.[42]
The rest of the $7 billion will come from several of National City's largest current institutional holders and others, the release said. [25] At the time total assets had dropped to $539 million -- a 16.2 percent year-over-year decrease. McCune director Hank Beukema declined to discuss the foundation's current valuation or its options regarding National City. "Because these matters are a work in progress, we cannot have public discussions about them," he wrote in an e-mail.[9] National City shares plunged $2.15, or 25.8 percent, to $6.18 in afternoon trading.[11] Shares in National City plummeted 19 percent to $6.74 in early morning trading Monday.[4]
National City (nyse: NCC - news - people ) shares tumbled 27.6%, or $2.30, to close at $6.06 on Monday.[17]
Sandler O'Neill & Partners analyst R. Scott Siefers called the potential deal's size "astonishing" and said it may mean National City will not be able to earn more than a dollar per share "for a long time."[40] National City acquired Florida's Fidelity Bankshares Inc. for $1 billion and Harbor Florida Bancshares for $1.1 billion in deals struck in 2006.[24] The deal's terms will help to protect the buyers - which include some of the bank's biggest institutional shareholders - against a further decline in National City's fortunes.[2] The deal, which has yet to be finalized, could be announced Monday, ahead of the bank's earnings release Tuesday. National City announced April 1 that it had hired Goldman Sachs to serve as an adviser as it reviews its strategic alternatives. Other companies that reportedly expressed interest in some type of deal with National City were KeyCorp KEY and Fifth Third Bancorp FITB, Wells Fargo WFC and Warburg Pincus.[22]
Monday April 21st 2008: 4:45 P.M. ET- The major U.S. equity indices traded mixed today following last week'''s heavy gains. Investor'''s were shaken by this mornings earnings results from Bank of America (NYSE:BAC) and National City Corp (NYSE:NCC).[27] "In addition, the equity infusion will permit National City to handle incremental credit costs elsewhere in the bank in a worsening economic environment and continue to maintain a solid capital position."[23] The infusion will boost National City's Tier 1 ratio -- a measure used by regulators to determine a bank's ability to repay loans -- to 11.4 percent from 6.65 percent as of March 31.[24] Net charge-offs, or loans National City is writing off, rose nearly four-fold to $538 million.[4] "We do not anticipate any near-term changes," said spokeswoman Kristen Baird Adams when asked about possible layoffs or branch closings. The moves come as National City reported its third consecutive quarterly loss: a $171 million deficit for the January-March period.[43]
NEW YORK -- National City Corp. reported Monday it has received an indemnification claim notice alleging that the Midwestern bank breached the terms of a September 2006 pact selling its First Franklin home mortgage unit to Merrill Lynch & Co.[11] National City is raising money during the deterioration in the credit and mortgage markets that has plagued banks since the middle of 2007 and cut into capital positions. "We came into this period with somewhat more exposure to residential real estate than some, and therefore we feel the stress somewhat more," Raskind said.[51] The bank had to raise enough capital "to stabilize our debt ratings, beyond a shadow of a doubt,'' National City Chief Executive Officer Peter Raskind responded, citing speculation about the bank's condition.[16] AS THE second week of bank earnings reports in the United States gets under way, at least two - Bank of America and Ohio's National City Corp - are looking for ways to raise fresh capital.[34]
With the cash infusion, National City becomes the third bank in the last two weeks to try and raise money as it tries to cope with the fallout from the mortgage market'''s collapse.[4]
National City Bank has 151 branches and about 2,000 employees in the eight-county Pittsburgh market, where it has the second-largest share of deposits, behind PNC Bank.[43] Just a year ago, National City was putting new signs on scores of recently acquired bank branches in Florida.[2] The news sent National City's tumbling 26 percent. For one thing, it noted, in-state rivals such as KeyCorp and Fifth Third reportedly passed on the deal after taking a look at National City's books.[15] There are reasons to wonder how even a recapitalized National City will fare in the coming year. For one thing, in-state rivals such as KeyCorp ( KEY, Fortune 500 ) and Fifth Third ( FITB, Fortune 500 ) - which could have benefited from the overlap between their own retail banking operations and National City's - reportedly passed on the deal after taking a look at National City's books.[2]
If a deal is struck, it could be announced as early as Monday, the source said. The deal would likely see National City add a director to its board -- Corsair's Vice Chairman Richard Thornburgh, the source said.[5] Corsair will also receive a seat on National City's board and said it intends to appoint Corsair Capital Vice Chairman Richard E. Thornburgh.[12]
One of the first questions during yesterday's call was whether National City's board was going to shake up top management because of the stock's long slide. "If at any point the board determines a change is needed at the top, they will do so," said Raskind, who chairs the board. National City announced 900 job cuts at its wholesale mortgage unit in January. Nearly all of them are outside the Pittsburgh market, said spokesman Bill Eiler. It has reduced its work force by about 3,400 in recent months.[43] The analyst backed a "Perform" or "Neutral" rating on the stock. McEvoy said it's important that National City continue to pay a dividend, however small, to keep certain institutional investors from automatically selling the stock.[29] Corsair is joined in the National City transaction by several hedge funds and institutional investors, including some foreign ones.[34]
Neither KeyCorp nor Fifth Third was willing to make an offer close to National City's market price, sources said. Among private-equity firms, Kohlberg Kravis Roberts and Warburg Pincus both pondered investments but also pulled out. That left Corsair, which was formed in the early 1990s in the wake of the savings-and-loan crisis.[30] The National City investment marks the biggest move yet by Corsair, founded in 1993 by J.P. Morgan Company to invest in distressed financial institutions.[4] When the cycle turns, Corsair believes, National City will emerge with improved pricing power and its strong retail franchise intact. There is also the long-term hope that National City will be acquired once its prospects improve. This approach echoes Corsair's overseas investments.[37]
As a result of the injection, Corsair will hold a 9.9 per cent stake in National City.[30] National City agreed to sell the Corsair stake at a discount to market price, and increased the size of the offering after finding strong demand.[16]
Thanks, Jeff and good morning, everyone. My comments this morning will summarize the first quarter performance of the loan portfolio by major segment, including the ongoing businesses of National City and the liquidating portfolios.[31] All of the national home equity portfolio, but in particular the most recent vintages, titled here as '''originated for sale''', posted higher charge-offs and delinquencies than we had expected. To expand on comments from last quarter'''s update, the segment of broker loans that combined stated income, high-cost high HPA markets such as Florida, California and New York, and product originated on a standalone or cash back basis are charging off at elevated levels. This subset of the national home equity portfolio represents about 15% of balances but accounts for about half of first quarter losses. The first quarter reserve building actions reflected on slide 10 reflect our view that charge-offs will persist at this higher level over the next year.[31] McLEAN, Va. (AP) -- The nation's largest newspaper publisher, Gannett Co. (NYSE:GCI), said Monday that its earnings fell 9 percent in the first three months of the year as the weak economy contributed to a drop in advertising. Other stories: NEW YORK (AP) -- Jefferies Group Inc. (NYSE:JEF) said Monday it swung to a loss during the first quarter as the investment bank suffered losses in its asset management division and from the trading of high-yield securities.[52]
More tellingly, while house prices peaked in most of the U.S. in the summer of 2006, some industry players believe the banking sector is only beginning to feel the full brunt of falling prices and other sour trends. Rival Bank of America ( BAC, Fortune 500 ), for instance, on Monday posted a 77% drop in first-quarter earnings, as its provision for credit losses soared to $6 billion from $1.2 billion a year ago.[2] Banks and securities firms have raised or announced plans to seek at least $163 billion in capital amid losses on subprime-related securities.[16] Reeling from steep mortgage losses, the bank secured a $7 billion cash infusion Monday.[2] The way it works at the current time is it'''s essentially a 50-50 deal with the MI carrier so to the extent not all of the claims are paid, then we would have less than 50% of our losses in the form of recovery. Those carriers are paying, I think insurer A as we have described before is paying more readily and is paying stable as well. The first liens also have mortgage insurance, I think it'''s around $1.3 billion or so have mortgage insurance on them and that'''s down to 60% loan-to-value.[31] From a risk perspective, there are two portfolios here: $4 billion of first mortgages and $1.3 billion of second. The second liens have and will continue to drive the bulk of the losses. As you can see from the middle of the chart, it is apparent that the trends in the 90-plus day dollar delinquency number have deteriorated since midsummer when liquidity for this asset class dried up.[31]
We expect remaining losses in national home equity of $2 billion to $2.4 billion from the $10.8 billion portfolio based on normal future draws against the $5 billion undrawn HELOC commitment, two-thirds of which relates to the originated portfolio segment, one-third relating to the originated for sale segment; and continued severity rates in the high 90s.[31] As of March 31, the allowance for loan losses was $2.6 billion, or 2.2 percent of portfolio loans, compared to $1.8 billion, or 1.5 percent of portfolio loans, at the end of last year. Raskind said cutting the dividend and raising its reserves were prudent in anticipation of continued difficulty with home loans.[10] My target, established about a year ago, was $400 billion in losses -- a number the Fed probably thought was ridiculous, but it was simply arrived at from the number of exotic loans taken from 2005 to 2007 of the 14 million homes that exchanged hands and then adjusting for the adjustable rates and geographic dispersion.[46] In total, net charge-offs for the quarter were $538 million, compared to a $1.4 billion provision charge, increasing the allowance for loan losses to $2.6 billion or 2.23% of loans at quarter end.[31]
It'''ll be a big trial, I'''m sure. I can safely assume they are working on arrest warrants as we speak. Noted with interest : Lehman ( LEH ) spent over $750 million on share repurchases in its most recent quarter, while growing assets by another $90 billion and pushing leverage well over 40 times. It was, of course, able to refinance those repurchases by finding fools to kick in $4 billion (please note the date on this Bloomberg article ).[45] A year earlier, it earned $319 million, or 50 cents per share, in the quarter. Its shares fell $2.33 to $6.00 in afternoon trading after sinking to a 52-week low of $5.92 earlier in the session. Its shares are about 85 percent below its high for the past year.[10] The latest results come on the heels of a fourth-quarter loss of $333 million, or 53 cents per share, due to the housing crisis.[19]
The board-approved dividend cut will result in the bank's 21 cents-per-share dividend payable May 16 being slashed to 1 cent per share. "While we fully recognize that the dividend is an important element of return to our stockholders, the dividend reduction is consistent with our efforts to strengthen our capital position and is prudent given this environment," CEO Peter Raskind said in a news release. Regulators had urged the bank to bolster its capital reserves because the bank's tier-one capital -- an indication of a bank's financial strength -- had fallen to just a half-percentage-point above what regulators require.[42] The bank said Monday it is cutting it dividend to 1 cent per share, from 21 cents, payable May 16 to shareholders of record as of May 1.[44]
The bank has to ask shareholders to approve issuing the additional 1.27 billion shares. It had about 633 million shares outstanding at the end of the first quarter.[42] We also incurred some integration costs during the first quarter of around $19 million associated with the February conversion of MAF Bank in Chicago and Milwaukee.[31] The mortgage losses in the first quarter outweighed a gain of about $500 million from Visa Inc.' s initial public offering and solid financial performance in retail banking, commercial banking and wealth management businesses.[10]
IndyMac Bancorp Inc. may need to raise as much as $500 million, Roberts wrote. The Pasadena, California-based company, the second-largest independent U.S. mortgage lender, posted the first annual loss in its 23-year history last year and has now eliminated the dividend.[16] The company's shares dropped below $6 yesterday for the first time since 1990 and ended the day with a 28 percent loss, the second-largest since then.[25] We still own restricted shares in Visa that at the current conversion rate and trading price for Visa public shares have a nominal value of around $900 million carried on our books at zero. We intend to explore options to monetize this stake but with the new capital in place we have more time if needed to maximize the value of that stake.[31] As NYSE Euronext pursues a $260 million takeover bid for the American Stock Exchange, companies with Amex listings for their shares are walking away in droves. Twenty have departed this year for the New York Stock Exchange, the NYSE Arca electronic market or Nasdaq Stock Market Inc., according to data compiled by Bloomberg.[25] The price for the underlying stock was set at $5 a share, a discount not only to last week's close of $8.33 but also to net tangible book value, a benchmark for valuing banks. The latter will equal $7.02 a share after adjusting for the share sale, Chief Risk Officer Dale Roskom said on a conference call.[25]
Under the plan, the investors would pay about $5 a share for the stake, the source said, a 40 percent discount to the company's Friday closing price of $8.33.[5] The Seattle-based company sold 176 million shares at $8.75 apiece, a 33 percent discount to the previous day's close.[16]
During the same time last year, it reported $319 million in profit, or 50 cents a share.[4]
Corsair will spend $985m on buying shares in National, a move which Mr Raskind said was a vote of confidence in the firm's long-term prospects.[47] Corsair and another private-equity firm will invest a total of $985 million, the bank said in a statement.[25] Corsair will inject $US985 million into the deal, and its vice-chairman, Richard Thornburgh, will join the bank's board, the source briefed on the negotiations said.[34] In the past 52 weeks, the stock has traded as low as $6.56 and as high as $38.32. The deal was approved by the bank's board this evening, according to The Cleveland Plain Dealer Web site.[22]
The strategy carries risks. Private equity firms often cash out of their investments quickly, but it could take several years for the banking industry to dig out of its current mess. Banks are already retreating from the rapid expansion that got them into their current financial predicaments, meaning that growth is likely to slow substantially. It isn't clear how much sway private equity firms will have over current management, even though they are getting board seats in these deals.[1] Corsair Capital is a well-established private equity firm focused exclusively on long-term investing in the financial services industry. It has a solid track record of making successful long-term investments and productively working with the boards and management teams of the companies in which it invests.[31] The capital raise includes US$985-million from Corsair Capital, a U.S. private equity firm.[49]
The U.S. regional bank was yesterday hammering out final terms of the transaction with a group of investors led by Corsair Capital, a New York private-equity group.[30] Although the latest bank woes unsettled investors, the CBOE Volatility Index (.VIX), a barometer of jitters on the U.S. equity market, showed no new signs of panic. It barely rose, ending Monday with a reading of 20.5, its second lowest close this year. Japan's Nikkei stock average (.N225) closed down 1.1 percent, led lower by blue chip exporters such as Honda Motor Co Ltd (7267.T) as a stronger yen prompted investors to lock in profits after the market climbed for five days.[53] Believe it or not, some savvy Wall Street deal-makers see the beleaguered U.S. banking industry as a glass half-full. Lured by rock-bottom stock prices and enough leverage to buy stakes at steep discounts to existing shareholders, private equity firms are betting that their targets will emerge from the ongoing crisis in stronger shape, even if the turnaround takes longer than such investors typically prefer.[1] The recent bank deals are different from the traditional deals that private equity firms typically hunt down. Private equity players are minority shareholders in the banks, potentially limiting the sway that they can hold over management and strategic direction.[1] Snapping up stakes in ailing banks represents a shift away from the big deals of recent years in which private equity firms dominated the merger boom with a string of blockbusters.[1]
At smaller banks, private equity firms are likely to increasingly use "special purpose acquisition companies" - or SPACs - to invest, says Gerard Comizio, a partner at law firm Paul Hastings Janofsky & Walker. These so-called "blank cheque companies" raise money from public investors and then are free to use those funds to buy companies.[1]
Corsair has indicated that it supports Raskind. Private equity executives say they also are attracted to the low-cost deposit base at many banks, as well as their loan penetration among medium-size and small companies. Such cornerstones of traditional banking are unlikely to evaporate despite the current turmoil, especially when the borrowers are longtime bank clients.[1] One sticking point for Scotiabank could have been the quality of the U.S. bank's loan portfolio. NCC said on Monday that its provision for bad loans was US$1.4-billion in the first quarter of 2008, up from US$691-million last quarter, reflecting "further deterioration in the credit quality of residential real estate loans, specifically within the liquidating non-prime and broker-sourced mortgage and home equity portfolios, as well as the residential construction portfolio."[49]
Battered by subprime loans and the housing market, the bank last year set aside $1.33 billion to cover souring mortgages.[43] KBW has identified 23 lenders that may need to raise $12.4 billion as bad loans pile up, including Bank of America Corp., second-largest in the U.S. by assets, and Sovereign Bancorp Inc., the second-biggest savings and loan.[16] Once ranked among the 10 biggest originators of "subprime'' loans to people with poor credit histories, the bank plans to raise $6.37 billion selling convertible securities.[16]
Washington Mutual, the largest U.S. savings and loan, raised $7 billion from an investor group led by TPG Inc. on April 8.[16] The Corsair deal comes weeks after buyout group TPG led a $7bn recapitalisation of Washington Mutual, the largest U.S. S&L;, and days after Wachovia announced plans to raise $7bn from shareholders.[35]
Your Lehman comments are not : what you call fools are people who oversubscribed by almost 4x to the $4B capital infusion. Of all the financial companeis which raised capital in 2008 to strenghten their balance sheets, Lehman had the least shareholder dilution.[45]
Peter Raskind, CEO of National City, told analysts in a conference call that the capital infusion will help stabilize National City. "It reassures customers we are here for the long haul," he said.[10] National City kept some of the loans made by First Franklin, saddling it with losses.[24] Moody's changed the ratings outlook to stable from under review, while Fitch and S&P; maintained negative outlooks. "Despite this position of strength, National City's negative outlook reflects asset quality deterioration in several of its housing and mortgage-related portfolios, its still-large exposures to risky loan types and the market's ongoing aversion to all but the safest asset types," S&P; said.[23] National City Home Loan Services employed about 300 people at Allegheny Center, plus 356 at a call center in Upper St. Clair, which was sold to Merrill Lynch in January 2007.[43]
Welcome to National City Corporation'''s first quarter earnings conference call. In making these statements we base them on presently available information and current expectations. We believe these statements to be reasonable, but they are subject to numerous risks and uncertainties as described in our Form 10-K and in our other filings with the Securities and Exchange Commission.[31] Welcome to National City Corporation'''s first quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the conference over to our host, Mr. Tom Richlovsky, Senior Vice President and Treasurer of National City Corporation.[31]
National City may have many more problems than are readily apparent that suggest it may not be otherwise viable going forward. I am not surprised but increasingly concerned about "bad news to come" from others and frankly good opportunities for Corsair, Flowers and those who have kept some powder dry for exactly these types of opportunities. [4] Corsair's vice-chairman Richard Thornburgh would also get a seat on National City's board.[41]
National City is raising the funds through a private placement and isn't obligated to name the investors.[25] "We are pleased with the confidence that our investors have expressed in the value underlying National City's franchise and the fundamental strengths of our business model that will help drive a return to profitability," CEO Peter Raskind said.[2]
Without citing specifics, CEO Peter Raskind responded to conference call questions about a buyout by saying that National City "did thoroughly explore a wide range of alternatives" but found the equity offering and dividend cut to be the best decision.[19] Raskind called it "an unacceptable record" and "not anything we're remotely pleased about or proud about." Raskind characterized the equity offering and dividend cut as painful but necessary decisions to stabilize operations and protect its credit ratings. Both S&P; and Fitch affirmed National City's investment-grade ratings after its report, but each maintained a negative outlook.[19]
Since November, the bank was rumored to be talking merger with J.P. Morgan Chase, Ohio rivals KeyCorp and Fifth Third Bancorp., and Bank of Nova Scotia. Analyst Barkocy said their offers were apparently less than what National City was willing to accept. [43] National City operates about 1,400 bank branches spread mostly across Ohio, Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, Pennsylvania and Wisconsin. It's Florida presence, the result of recent acquisitions, is part of a strategy to enter a growth market.[10] Analysts thought one option was putting National City up for sale, and several banks were viewed as potential buyers.[51] With 1,400 branches in nine states, National City is the nation's 10th-largest bank.[43] To be sure, the trends won't keep running against banks like National City forever.[2]
Rival private-equity firms examined National City's books and declined to make an investment.[37] The closing price was 85 percent below a peak reached in March 2007, when the subprime-mortgage collapse that ensnared National City was just getting started.[25] "What we haven't seen yet is the impact on the consumer of falling house prices, rising energy prices, higher food prices and higher unemployment." National City may have an early view on those trends, given that it's based in economically-stricken northeast Ohio.[2]
Until last year, National City had a sizable mortgage operation in the North Side.[43] The issue is can National City survive? Bove thinks it can. National City was badly burned by the subprime mortgage crisis, due to its exposure to the Ohio and Michigan real estate markets.[17]
Goldman Sachs Group Inc. was the financial adviser to National City, while Sullivan & Cromwell LLP and Jones Day served as legal advisers.[24] Goldman Sachs provided financial advice to National City, while Sullivan Cromwell and Jones Day worked as legal advisers.[4]
Unfortunately, our guess is that, prior to that, National City will be a part of a much larger financial institution."[17]
In all, National city eliminated about 3,400 jobs over the past few months. Raskind said in January that National City remained fundamentally strong and well capitalized and expected to meet its challenges.[10] National City had announced April 1 that it retained Goldman Sachs to help it explore "strategic alternatives," which could include a sale. The Wall Street Journal, in a Monday story, said Cincinnati-based Fifth Third Bancorp (Nasdaq: FITB) and Cleveland-based KeyCorp (NYSE: KEY), both of which have been reported to be possible buyers, have backed away from a deal.[14] The alternatives can be even worse, as National City Corp.' s shareholders are learning.[25] Every additional dollar raised further hurts National City'''s shareholder base.[31]
Because of National City's problems, McCune put a stop last February to any new grant applications until June.[9] According to a Securities and Exchange Commission filing on Monday, National City's management is not yet able to assess the probability of a material adverse outcome, or estimate the amount of any potential loss.[11] "Over time, the old banking culture of National City, which at one point reflected strong Midwestern values and decision making, may emerge.[17] "The fear was that National City was going to go bankrupt and it was going to be a huge disaster in the banking industry," Bove said. "I think this process shows that National City is not going to go bankrupt."[17] Thornburgh and another independent director will join National City's board.[24] We can'''t comment -- we never can -- on the specifics of the regulatory relationship between our regulators and National City in particular.[31] Oppenheimer analysts Terry McEvoy and Erik Zwick said in a report Monday that a merger involving National City still might happen.[17] A National City representative did not immediately return a call for comment Monday afternoon.[11] Raskind said National City would "take a critical eye" to possibly exiting businesses or markets. He would not elaborate.[43] The troubles of National City impact southwestern Pennsylvania in several ways.[9] The announcement by Cleveland-based National City ends several weeks of speculation it was seeking a buyer after struggling with exposure to the hard-hit Ohio and Michigan real estate markets, and a badly timed foray into Florida.[38] Your National City comments are insightful as you provide solid analytical observations to back them.[45]
Analysts were unimpressed with the proposal, which would see 126 million new shares issued at a vastly discounted price, and National's shares fell 28% in Monday trading. [47] The 126.2 million new common shares will be sold at just $5 each, a significant discount to Friday's closing price of $8.33.[20]
Bank of America (NYSE: BAC) reported a first-quarter net income of $0.23 per share, which was much lower than analysts estimates of $0.41 per share.[27] The entire 9 per cent in the Chinese bank could be worth more than $US15 billion.[34] The bank said it set aside nearly $1.4 billion more in the current quarter.[43] Net charge-offs, loans the bank doesn't expect to be repaid, rose to $538 million in the quarter from $275 million in the previous quarter.[24] Well, on the First Franklin book we moved $120 million of loans that were in the 90 plus bucket into non-performing status.[31]
The French bank's chief has been under fire since the disclosure of a trading scandal in January. The bank increases its provision for loan losses in the first quarter.[22] The Charlotte-based bank wrote was hit by losses in structured finance products and leveraged loans in the first quarter.[19]
Please turn to slide 10 which provides an overview of first quarter performance for the $116 billion portfolio by segment. [31]
Trying to escape a cash squeeze, CIT Group Inc. sold $1.5 billion in common and preferred stock at a 14 percent discount to yesterday's $12.74 closing price.[16] The stock jumped 24 cents, or 4 percent, to $6.27 in premarket trading. Lehman Brothers analyst Jason Goldberg cut his price target to $8.50 from $16, implying he expects the stock to rise 41 percent over Monday's $6.03 close. He kept an "Overweight" rating. Friedman, Billings, Ramsey & Co. analyst Paul Miller Jr. cut his price target to $6 from $10 and kept a "Market Perform" rating.[39] The stock fell 14 percent to $10.91 at 11:12 a.m. in New York trading, the most in a more than a month.[16]
First Horizon fell 13 cents to $11.70 and IndyMac fell 7 cents to $3.98 at 11:41 a.m. in New York trading.[16]
The geographic split is Chicago, New York, Boston and D.C. Of the $758 million of Florida exposure inherited from the Harbor and Fidelity acquisitions, approximately $225 million is spec homes that are currently performing because the developer is paying interest carry out of pocket. We believe that many of these developers are feeling liquidity pressure and as the length of the housing contraction continues, many of them may default. Should this happen, we would expect loss severities around 35%.[31]
The Corsair-led group is contributing $985 million, the bank said today in a statement.[24] More bad news from banks could be on the way after Britain's Royal Bank of Scotland (RBS.L) announced a 12 billion pound ($24 billion) rights issue to cover a potential 5.9 billion pound writedown. Other British banks could follow suit.[53] Bank of America, based in Charlotte, North Carolina, may need $7 billion and Philadelphia-based Sovereign may need $1 billion, wrote KBW analysts including Melissa Roberts.[16] The bank also reported $2.3 billion in nonperforming assets, also driven mostly by subprime mortgages.[4] The bank has lost billions in recent months because of the collapse of the mortgage markets and is under pressure to raise more capital. Bank of America executives have said they now wanted to sell the Chinese bank stake within the next year.[34] The biggest firms have raised staggering amounts of capital, with KKR recently closing on a $US17.6 billion fund and Blackstone amassing a $US21.7 billion fund last year.[1] "We anticipate the necessity of a capital infusion,'' Roberts said, estimating the lender may need to raise $1 billion to keep capital ratios above regulatory minimums.[16]
The bank's $2.1 billion Sunshine State acquisition spree could hardly have come at a worse time: Florida ranked third nationally in foreclosure filings last month, according to RealtyTrac.[2] We hit $300 billion yesterday, but if you go read the NCC you will know that the next $100 billion is already upon us. This bank is a travesty. It reminds me of the worst of 1989, the Centrusts and the Columbias and the Gunbelts, and the defrauding that took place here must have been monumental. At least, unlike CIT, they had the sense to find a sugar daddy. Unlike CIT, which just priced its crummy merchandise, the cost was an almost total wipeout for the chumps who believed in these jokers. Random musings: Where are the consolidations in this drug business? We are obviously over-pharma'd, but no transactions are occurring.[46]
Slide 12 summarizes our overall home equity exposure of $26 billion at March 31 broken into the same three segments as we did the last quarter.[31] We now expect losses to continue at about $100 million a quarter for the next year based on severity assumptions of 75% for undeveloped plans, 95% for in-process homes and 50% to 55% for near completion projects.[31] The non-prime portfolio losses shown here at $750 million or net of expected mortgage insurance recoveries.[31] For the construction term portfolio the combination of normal construction schedules and the severity rate assumptions reviewed earlier lead to an expectation of $550 million to $625 million of remaining losses principally over the next 15 to 18 months.[31]
Gross losses before mortgage insurance would be approximately $1.2 billion.[31] During our last call we indicated a range for 2008 losses of $1 billion to $1.3 billion.[31]
The payout was cut for the second time since January, when it dropped to 21 cents a share from 41 cents. The sale will dilute the value of their stakes by more than tripling the number of shares outstanding to 2.03 billion. Most holders won't be able to prevent this by buying new stock. [25] The new capital comes with a cost: it will more than triple the number of shares the company has outstanding. Investors had a hard time hiding their disappointment.[17] HONG KONG (Reuters) - Asian shares fell on Tuesday as investors flinched at more bad news from the banking sector while fears of fresh dollar weakness hurt exporters and kept oil within sight of its latest record of nearly $118 a barrel.[53] The plan calls for the investors to pay about $US5 a share, according to people familiar with the situation.[30]
Private-equity and sovereign-wealth funds are negotiating deals to replenish capital in return for stakes at discounted prices, driving down the value of shares held by existing investors.[16] Investors will receive common and preferred stock as part of the deal as well as warrants to purchase additional shares.[29]
Shares closed Friday at $8.33, making the reported $5-per-share deal a 40 percent discount.[40] The company's shares dropped $2.30, or 27.6 percent, to close at $6.03.[21] The company will issue 126.2 million common shares at $5 apiece and 63,690 preferred shares at $100,000 apiece.[19] Shares of Caterpillar Inc. fell $1.42 to $83.86 after a pair of analysts downgraded the construction machinery company on valuation.[48]
Shares plunged $2.19, or 26.2 percent, to $6.14 in midday trading. Shares hit a low of $5.92 earlier in the session _ their cheapest trade since late 1990.[23] What's more, about 14 percent of the 635 stocks in the Amex Composite Index trade for less than $1, the minimum price set by the NYSE for continued listing. The opinions expressed are his own.)[25] The Visa shares are restricted for the shorter of three years or whatever period it takes to settle the covered litigation which could be an extended period of time, presumably longer than three years. Not less than three years and their ultimate value is not just the trading price of Visa stock but also the exchange rate is subject to adjustment again depending on how the litigation plays out relative to the escrow funds that have been established already.[31] If the company receives approval of the shareholders, each share of convertible preferred stock will automatically convert into 20,000 shares of common stock.[17]
Oppenheimer & Co. analyst Terry McEvoy expected investors initial reaction to the news to be negative, since some shareholders were looking for an outright sale of the company and the new capital is highly dilutive.[29] Corsair on behalf of the private equity investors was able to see a more expansive view of material non-public information. The follow-on institutional investors then reviewed information that will be made public and is made public or has been made public as of this call. They are effectively cleansed from that material non-public status. And, yes, I think Peter mentioned earlier that several of our current shareholders participated in this.[31] Private equity firms Kohlberg Kravis Roberts and Blackstone are also swirling around financial institutions, according to people familiar with the situation. "The fact is there is a lot of private equity interest around this space right now," Corsair president Ignacio Jayanti says.[1]
RBS Greenwich Capital, a division of Royal Bank of Scotland Group Plc, was the financial adviser to Corsair and Simpson Thacher & Bartlett LLP was the legal adviser.[24] "There is so much institutionalised capital all over the world that's available to invest," says John Eggemeyer, who runs Castle Creek Capital, a U.S. private-equity group that invests in small and mid-size banks.[30] There is a series of different alternatives that one could imagine. One could imagine selling some or all of these assets, although as you know the market for selling these assets right now is quite punitive. Other possibilities could include reclassifying them as held-for-sale and taking marks and then selling them as we can and would. Other possibilities could include several different variations of good bank/bad bank kinds of structures. I think the common theme here is that whatever vehicle or vehicles we ultimately choose, all of them are enabled by capital or require capital to execute in a market like this. Prior to this transaction, while we certainly met the regulatory tests as well capitalized, we did not have sufficient capital flexibility to make much material progress against any of the alternatives I just discussed. Again, that'''s one are the key pieces of rationale for this transaction and we'''ve got work to do here in terms of evaluating those options and whatever others may make sense and making good sound economic choices. I think what'''s clear is we would like to move through this process a bit more quickly than just working it out over a long period of time.[31] Thanks, Jill. First of all stating the obvious, there is no question that this transaction is substantially dilutive to the current shareholders. That is factual and irrefutable. I have to say our objectives for this transaction were severalfold. It was very important for us to provide ourselves with sufficient flexibility to deal with our problem assets we felt in a more expeditious fashion than simply over the passage of what would probably have been a relatively long period of time. While we'''ve made no particular decisions as to exactly what actions we'''ll undertake to do that, what we now know is that we have the flexibility to move through these problems more quickly than we otherwise would have. It was also very important and Jeff referenced this in his prepared remarks for us to stabilize our debt ratings beyond a shadow of a doubt, in order to head off some of the rumors that were circulating.[31] From what I can tell this deal amounts to to a 67% dilution for current shareholders when, in my opinion, the survival of the bank was not an issue.[4]
Among the fund's early successful deals was a 1994 investment in Swedbank. Corsair recapitalized the Swedish bank and exited in 1997, making more than three times its investment.[37]
By the time Corsair closed on a $1 billion pool in early 1993, the banking system had largely recovered. Corsair turned its attention overseas.[37] The Houston-based company is one of only 17 on the Amex that have more than $1 billion in market value, Bloomberg data shows. While the exchange has added a dozen companies this year that traded over the counter, about the same number have gone the other way.[25] About two-thirds of that decline or a little over $1 billion was in escrow balances and again escrow balances tend to vary a lot during the course of a month and as it relates to re-fi activity and other activity in the mortgage company.[31] The company's net interest income -- the difference between the interest it receives and what it pays out -- fell about 4% to $1.1 billion.[19]
Of the $1.1 billion in condos, approximately $350 million are in Florida, most of which will come on-line in the near future. For the most part these condos are on the waterfront and have had strong presales activity with little fallout in deposits.[31] Of the roughly $4.1 billion of outstandings, approximately $1.1 billion is in condos, $1.6 billion is in homes being constructed in single-family home developments and $1.4 billion in the land and lot loans tied to the aforementioned single-family home developments.[31] Rep. Barney Frank has proposed a $300 billion Federal Housing Administration mortgage-guaranty program that could help hundreds of thousands of homeowners refinance high-cost loans.[2]
The firm has set aside another $1.4bn to cover the cost of mortgage loans unlikely to be repaid as conditions in the troubled housing market worsen.[47] In mortgage banking, as you know we have downsized our origination significantly from the fourth quarter. That'''s reflected in those segment results, and clearly the loan loss provision here was elevated and that was primarily related to the construction firm book which may be discussed later on in Dale or Rob'''s comments.[31] The company revised future loss expectations and said it significantly increased reserves, in particular liquidating portfolios of nonprime mortgage and broker-sourced home equity loans.[10]
The decline, coupled with lower sales of Barbie dolls and higher SG&A; -- selling, general and administrative expenses -- produced a first-quarter loss of $46.4 million for the El Segundo, California-based company.[25] Then asset quality, as far as reserve builds, why not more? Page 15 of your presentation, the loss expectations, I guess you'''re saying around $3.5 billion more.[31] Grey Wolf Inc., an oil and natural-gas driller, said yesterday it will transfer to the NYSE after taking over Basic Energy Services Inc. in a $1.42 billion deal.[25] Net interest income fell to $1.07 billion from $1.12 billion, and the net interest margin dropped 3.18 percent from 3.69 percent.[44] Slide 14 provides performance information on the non-prime balances related to the former First Franklin business. These balances continue to liquidate from $6 billion at year-end to $5.3 billion at March 31.[31] The $15.7 billion branch and direct portfolio also posted growth in charge-offs.[31] The lender last year acquired MAF Bancorp for more than $1.8 billion to expand in Chicago and enter Wisconsin.[24] In the same week, JPMorgan and Wells Fargo revealed credit crunch write-offs of $5.1 billion and $2 billion respectively and Wachovia declared a $4.4 billion hit.[41]
According to AAA, the national average price for regular unleaded gas hit an all-time high of $3.50 a gallon.[27] The $750 million balance of the condo portfolio comes on-line in late 2008 and 2009.[31] The NPA and 90 plus day past due level increased $50 million to $493 million in total at March 31. Delinquency has extended to borrowers building their primary residence, not just those building second homes or investment properties.[31]
Among the other investors alongside Corsair is MSD Capital LP, an investment firm formed to manage the capital of Dell Inc (DELL.O: Quote, Profile, Research ) Chief Executive Michael Dell, a source familiar with the situation said. [38] Neither the other firm nor the remaining investors were identified in the statement. Dell Inc. Chief Executive Officer Michael Dell is taking part through MSD Capital LP, his family's investment firm, according to a person familiar with the move who asked not to be identified. This lack of transparency, though hardly desirable, is understandable.[25]
Corsair Capital and certain other investors will also receive warrants with a term of five years.[17]
Many people called hard money lenders '''loan sharks''' and other pejoratives. I got to tell you - those guys ain'''t got nothing on these institutional investors buying up positions in these ailing banks at 60 cents on the dollar.[26] The reason is that regulators don't permit non-bank investors to take a voting stake of greater than 9.9 per cent in a bank.[1]
The move, which may dilute existing shareholders by more than 50 percent, sent the stock plummeting almost 28 percent and drew complaints from investors who asked during a conference call whether there wasn't "a more palatable alternative.'' [16] The bank will call a special shareholders meeting to approve the common stock issue, the conversion of preferred stock into common stock, and the warrants.[14] Management and the board decided that issuing new stock was in the best long-term interest of shareholders, Raskind said. He added that the board, with its two new directors, will be "exercising all of its obligations in regards to oversight."[19]
"The improved attitude in the equity markets, the idea that the bulk of adverse earnings surprises in the financials are behind us, and that the numbers outside financials are not that bad is not good news for the bond market," said Cary Leahey, economist at Decision Economics in New York. "It's the old story that when stocks do better, bonds do worse."[6]
On April 1, the company hired New York investment bank Goldman Sachs to look into strategic alternatives.[10]
In a rights offering, anyone who owns shares can purchase more. Societe Generale SA, France's second-biggest bank, went this route after suffering losses attributed to trader Jerome Kerviel and writing down assets. [25] Not only is the bank No. 2 in market share, behind only PNC Financial Services Group, but it employs about 3,000 locally and has 220 branches.[9] An Oppenheimer & Co. analyst downgraded shares of Wells Fargo & Co. to "Underperform" from "Perform" on concerns over the bank's cash reserves.[48]
The company as I recall had to raise capital I think back in the mid 90s. I can'''t recall the exact reason, but I know that it was after a very aggressive share repurchase program and here we are again and I think we certainly would say that part of this lack of capital was due to very aggressive share repurchase.[31] Companies buy back stock to show that management feels good about the future and, sometimes, to increase earnings per share or spend unused cash. They did what? As you know crime never pays and I'''m sure those responsible for that will be brought to full and fair justice.[45] The sheer volume of specious lending is remarkable, coupled with the moronically aggressive buyback that the company did when the stock was much, much higher. That's the subject of a lot of derision on the call, by the way. That and repeatedly unanswered questions about all of the attempts to sell itself and how they apparently broke down. I don't know what Corsair saw in this darned thing. Those who have tried to do these infusions don't have much to show for them.[46]
A week after the second buyback was announced, the bank said first-quarter profits plunged by nearly one-third because of the slumping home loan sector. The bank quadrupled its reserves for loan losses, believing that more tough times were ahead. [45] You can't believe the breadth and depth of bad lending, including condo construction loans in Florida that are just now going bad. I think we are further along in losses than we were for these banks.[46]
Incremental first lien charge-offs include the effect of higher loss severity assumptions. This slide show the pro forma effect of this policy and assumption changes on first quarter results. The slide also recasts on a pro forma basis net charge-offs in earlier quarters to affect both credit charge-offs and reinsurance loss. On slide 15, we are summarizing remaining expected losses on these three higher risk and liquidating portfolios. [31] We believe that a significant factor behind growing second lien delinquencies and losses are rate resets on the underlying first lien. Through the end of the first quarter, many of the seconds have had a first in front of them reset. We did significantly increase our loss reserves for this portfolio in the fourth quarter and further added to loss reserves in the first quarter.[31]
Chief Executive Officer Peter Raskind is scraping for capital after the bank's strategy of acquiring banks in Florida at the height U.S. real-estate boom backfired. [24]
SOURCES
1. Privateers target troubled banks | The Australian
2. National City's hair-raising capital raise - Apr. 21, 2008
3. National City to raise $7B through sale of stock/warrants; co. cuts div by 95% - Forbes.com
4. National City to Raise Billion in New Capital - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times
5. Nat City nears investment of $6bln-$7bln - source | Reuters
6. TREASURIES-Prices slip as hopes for big rate cut fade | Reuters
7. Corsair To Invest $985M In National City | April 22, 2008 | AHN
8. New investors' money buys National City Bank time - editorial- cleveland.com
9. National City posts loss, gets $7 billion
10. The Associated Press: National City raises $7B in capital, but posts 1Q loss
11. National City receieves indemnification claim notice | Chron.com - Houston Chronicle
12. National City 1Q Loss $171 Million; To Receive $7 Billion Capital Infusion
13. Michael Dell's MSD investor in National City-source | Reuters
14. National City approves $7B cash infusion deal - St. Louis Business Journal:
15. Will Buyout Funds Regret National City Deal? - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times
16. Bloomberg.com: Invest
17. Corsair Jumps Aboard National City - Forbes.com
18. Free Preview - WSJ.com
19. Nat City Posts Loss, Raising $7B in Offering | Banks | FITB KEY NCC V WB WM - TheStreet.com
20. National City Secures $7B Capital Infusion, Cuts Dividend
21. Closing Glance: Diversified Financials - Forbes.com
22. Nat City Lines Up $6 Billion: Report | Banks | FITB JPM KEY NCC WFC - TheStreet.com
23. Three major ratings agencies confirm National City ratings | Chron.com - Houston Chronicle
24. Bloomberg.com: U.S.
25. Bloomberg.com: Opinion
26. National City drops pants for $7 billion in liquidity
27. News Briefs - Comtex SmarTrend Alert
28. The Enquirer - National City gets $7B cash infusion
29. National City shares tumble on capital raise, 1Q loss - Forbes.com
30. NatCity nears $6.4bn infusion | The Australian
31. National City Corporation Q1 2008 Earnings Call Transcript - Seeking Alpha
32. National City raises $7B in capital, but posts 1Q loss
33. Minyanville - NEWS & VIEWS-Article
34. Big US banks look outside the tent for more cash | smh.com.au
35. FT.com | Funds invest $7bn in National City bank
36. Funds to invest up to $8 bln in National City - FT | Markets | Markets News | Reuters
37. Corsair Capital Sets Sights on U.S. - WSJ.com
38. National City raising $7 billion; shares sink on loss | Reuters
39. Ahead of the Bell: National City upgraded | Chron.com - Houston Chronicle
40. Ahead of the Bell: National City's potential $6B infusion | Chron.com - Houston Chronicle
41. Credit crunch cuts Bank of America's first-quarter profit by 77per cent - Times Online
42. National City raising $7B through stock sale - Business First of Louisville:
43. National City acts to fend off merger - Pittsburgh Tribune-Review
44. Loan losses put National City in red for 1Q - Dayton Business Journal:
45. The Worst Is Over Day I - Seeking Alpha
46. Cramer on BloggingStocks: Nat City is just a travesty - BloggingStocks
47. BBC NEWS | Business | US bank eyes $7bn cash injection
48. National City, Bank of America lead premarket trading lower - Forbes.com
49. Scotiabank won't buy into National City
50. Corsair group nears $7 billion deal with Nat City: source | Deals | Reuters
51. Ohio Bank Secures Financing To Weather Mortgage Crisis - washingtonpost.com
52. Earnings roundup: National City, Gannett
53. Asian markets hunker down, fear more bank pain - washingtonpost.com
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