National City Latest to Get Capital, Reports Huge Jump in NPAs
National City Corp. (NCC) unloaded a doozy on the mortgage market Monday morning -- it a nutshell, Ohio's biggest bank will turn to the capital markets to raise $7 billion in capital, reported it's third straight quarterly loss, absorbed a charge of $1.4 billion for loan loss provisions, saw charge-offs nearly double, and slashed its dividend to $.01 per share. The bank, hard hit during the mortgage crisis, saw its shares tumble nearly 30 percent by afternoon trading on the New York Stock Exchange to $5.97, as a result. "Clearly, the U.S. housing and mortgage environment deteriorated significantly over the course of the first quarter. As a consequence, we have revised future loss expectations and significantly increased reserves across several portfolios, in particular the liquidating portfolios of nonprime mortgage and broker-sourced home equity loans," National City CEO Peter Raskind said. Capital anew News of fresh capital makes National City the latest in a growing string of banks and financial institutions to recapitalize as the mortgage and credit mess has drained core capital and threatened risk-based capital levels, and gives a stake to private and institutional investors including Corsair Capital LCC at a 40 percent discount to Friday's closing price. The lender will raise $6.37 billion selling convertible securities, it said in a press statement, with each share convertible into 20,000 shares of the company's common stock. The bank is also looking to raise $631 million via an offering of common stock. National City also slashed its dividend to 1 cent a share from 21 cents, in a move to further preserve capital. The moves to raise and preserve capital come too late for the first quarter; National City said it lost $171 million, $.27 per share, during Q1 versus a loss of $333 million during the most recent fourth quarter. Bad mortgages bite the bottom line To put just how bad mortgages really were for National City in the first quarter, it's worth noting that mortgage banking contributed a full $.47 per share loss to the bank's quarterly performance -- nearly double the actual loss reported on a consolidated basis. National City set aside $1.4 billion in the first quarter to cover expected losses on its loans, it said. The reserves would appear to be needed, too, given that nonperforming assets (loans more than 30 days past due, in most cases) jumped to an eye-popping $2.27 billion during the quarter -- an increase of 49 percent within one quarter. NPAs are now nearly 2 percent of the bank's loan portfolio, National City said. It's worth noting that at the end of the quarter, National City still held $18 billion in home equity lines of credit, and $28.7 billion worth of residential mortgages in portfolio -- including $8.5 billion worth of home equity loans. Residential mortgages alone (including HELs) saw non-performing assets more than double within one quarter, reaching $901 million -- a full 40 percent of all non-performing assets on the books at the lender. REO at National City was up 85 percent year-over-year, the bank said, as new additions from the bank's loan portfolio remained roughly constant at $250 million. The bank did sell $170 million in REO during the quarter -- its highest such total in well over two years -- but did so by absorbing $31 million in discounts relative to cost. The historic high in additional write-downs on REO beyond cost suggest that even aggressive discounting and a resulting bump in sales wasn't enough to clear the bank's latest influx of repossessed property. Sources have suggested to HW recently that this sort of REO scenario is playing out at numerous other lenders and servicers nationwide -- most notably, Countrywide Financial (CFC) and Washington Mutual (WM). Disclosure: The author held a long position in CFC, and no other relevant positions, when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.