National City Profit Falls 80 Percent, Hurt by Mortgages
National City Wednesday said quarterly profit fell a larger-than-expected 80 percent, sending its shares to a nearly seven-year low, as mortgage losses mounted even after the sale of a subprime lending unit to Merrill Lynch.
The ninth-largest U.S. bank also said it is eliminating 2,500 jobs, 1,200 more than it disclosed last month, after it merged its home equity and mortgage lending units and stopped making many loans that investors consider too risky.
Cleveland-based National City said 1,700 cuts are in mortgage banking and 800 elsewhere. The cuts equal about 7 percent of its work force.
Chief Executive Peter Raskind expects difficult market conditions to persist into 2008.
"The housing crunch is going to take quite a while to resolve. There's no way to resolve this quickly," Raskind said in an interview. "Furthermore, the liquidity crunch in the marketplace is unwinding very, very slowly. We just don't see any evidence it will be better than that."
Third-quarter net income fell to $106 million, or 18 cents per share, from $526 million, or 86 cents, a year earlier. Analysts on average forecast profit of 31 cents per share, according to Reuters Estimates.
Results included a $152 million loss, or 25 cents per share, in mortgage banking. Lending and noninterest income combined fell 15 percent while expenses rose 3 percent. Net interest margin fell to 3.43 percent from the second quarter's 3.59 percent.
"Turning National City around is going to take time," wrote Goldman Sachs analyst Lori Appelbaum. "National City has out-sized exposure to troubled real estate credit risk. ... Mortgage contributions are likely to remain depressed."
Ohio and Michigan, where National City has significant operations, ranked third and fourth nationwide in foreclosures in September, according to RealtyTrac.
National City shares were off $1.43, or 6 percent, to $22.48 in morning trading after hitting $22.43, their lowest level since November 2000.
Takes a Hit from First Franklin
Results also reflected losses related to its former First Franklin Financial subprime unit.
While National City sold the unit last December to Merrill Lynch for $1.3 billion, it kept several billion dollars of loans and is winding them down. Raskind said this loan portfolio fell to $6.6 billion as of Sept. 30 from $7.4 billion in June.
Merrill Lynch Wednesday posted a $2.24 billion third-quarter loss, after taking a larger-than-expected $7.9 billion write-down for subprime mortgages and other debt.
National City set aside $361 million for credit losses, up fivefold from a year earlier, while net charge-offs rose to $141 million from $117 million.
Raskind said National City boosted losses after delinquencies rose from prime home equity loans taken out in the first half of 2007. "Out of the gate, they weren't performing as well as older vintages had," he said.
The bank plans "limited" share buybacks in the fourth quarter so that it can shore up its capital levels.
National City said it ended September with 1,442 branches and $154.2 billion of assets. It spent about $4 billion in the last year to buy two Florida banks and MAF Bancorp Inc, to expand in the Chicago area.
Through Tuesday, National City shares had fallen 35 percent this year, compared with a 13 percent drop in the Philadelphia KBW Bank Index.