Report: National City On ‘Probation’ With Banking Regulators

Ohio-based National City Corporation (NCC: 2.20 0.00%) has quietly entered into a “memorandum of understanding” with the Office of the Comptroller of the Currency, according to a published report Friday morning. The bank has been hit hard by both HELOC and subprime loans on its books, among other things; National City said in late April that it would raise $7 billion in fresh capital, as non-performing assets have soared in recent months.

Terms of the confidential memo are not known; the Wall Street Journal first reported on the story, although it’s not known how the Journal obtained access to the memo.

Officials at National City did not return calls from Housing Wire for comment; press representatives at the OCC were not immediately available for comment. Neither the bank or regulators have commented to the press on the story as of yet.

The hush-hush agreement between the OCC and National City underscores the depths of the current housing and mortgage crisis for many of the nation’s larger banking institutions, who have been hit hard as the number of bad mortgages have risen and the U.S. economy has slowed in recent quarters. Many economists now believe the country to be in a recession.

It’s likely that National City isn’t the only such bank subject to a so-called MOU, the Journal reported, although it wasn’t clear if evidence of similar private enforcement actions was behind such sentiment.

National City was once among one of the largest subprime lenders, thanks to its First Franklin Financial Corp. subsidiary; in 2006, it sold First Franklin to Merrill Lynch & Co. (MER: 11.78 0.00%). Merrill has since shut down the subprime lender.

National City set aside $1.4 billion during the first quarter to cover expected losses on its loans. Nonperforming assets have soared at the bank, reaching $2.27 billion by the end of Q1 — an increase of 49 percent within one quarter.

Disclosure: The author held no positions in NCC or MER when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.