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National City loses $1.7 billion in second quarter

| Friday, July 25, 2008

National City Corp. reported a $1.76 billion second-quarter loss and said it has enough capital to survive the credit-market contraction.

The net loss was $2.45 a share, compared with profit of $346.6 million, or 60 cents a share, in the same period a year earlier, the Cleveland-based company said today in a statement. Twenty analysts surveyed by Bloomberg News had on average estimated an adjusted loss of 27 cents a share. The bank also increased its 2008 forecast for uncollectible debt to as high as $2.9 billion.

National City lost almost three-quarters of its market value this year on concern capital levels were insufficient to weather the collapse of the subprime mortgage market and the failure of its Florida expansion strategy. The bank raised $7 billion in April to offset losses and said yesterday it has the highest capital ratios of any major U.S. bank.

"We are highly confident we now have more than sufficient capital to ride out turbulent credit markets," Chief Executive Officer Peter Raskind said in a conference call. "We have no intention, plan or need to raise additional capital."

National City 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. With 1,400 branches in nine states, National City is the nation's 10th-largest bank.

National City stock fell 4 cents to $4.67. The shares lost 15 percent on July 14, the first trading day after IndyMac Bancorp Inc. failed. National City was forced to issue a statement saying it had seen "no unusual depositor or creditor activity."

The market may be "starting to come around to the view that National City has adequate capital and that the mortal peril has receded," Sterne, Agee & Leach Inc. analyst Sean Ryan said in an e-mail.

After IndyMac's failure, there was "some outflow of deposits, and then it abated as the week went on," Raskind said in a call with journalists. "It was quite a small percentage of our overall deposit base."

The bank's so-called Tier 1 ratio, a gauge regulators use to assess the ability to absorb losses, climbed to 11.1 percent as of June 30 because of the capital raised in April, the bank said in a statement. The ratio was 6.7 percent three months earlier. Banks must have a 6 percent Tier 1 capital ratio to be considered "well-capitalized" by regulators.

National City reserved $1.6 billion to cover loan losses tied to defaulting mortgage, home equity and construction loans. That compares with $143 million set aside during the second quarter of 2007.

"The company has been knocked down a few times; it hasn't been knocked out," RBC Capital Markets analyst Gerard Cassidy said. "But anyone who thinks this is a quick turnaround I think heard today it's not."

Loans National City doesn't expect to be repaid rose to $740 million from $98 million as more builders defaulted. Debts for which the lender is no longer collecting interest increased to $3.13 billion from $848 million.

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