National City to Trim Dividend by 49%, Cut 900 Jobs

By David Mildenberg

Jan. 2 (Bloomberg) -- National City Corp., Ohio's largest bank, will eliminate another 900 jobs and halve its dividend, the first reduction since the payout began in 1935. The company fell 6 percent in New York trading.

The lender plans to raise capital and hired Goldman Sachs Group Inc. as its adviser, Cleveland-based National City said today in a statement. The bank is halting home loans through brokers and firing the employees in that business, bringing total cuts to 3,400, or about 10 percent of its workforce, in one year.

National City is still reeling from the U.S. housing slump a year after selling its subprime mortgage unit to Merrill Lynch & Co. It now expects to make $15 billion to $20 billion in home loans in 2008, compared with a previous projection of $35.7 billion.

``The housing market was poised for a correction and then it corrected with a high degree of suddenness,'' Chief Executive Officer Peter Raskind said in an interview. ``It's not clear to me that anything can be done prudently to dramatically improve that process.''

National City will pay 21 cents a share on Feb. 1 to shareholders of record on Jan. 14. The dividend was previously 41 cents a share.

The bank fell 99 cents to $15.47 in New York Stock Exchange composite trading, the biggest drop in three weeks. The stock lost 55 percent in 2007.

`Cleaning Up the Mess'

``National City is probably at the front edge of cleaning up the mess,'' said analyst Gerard Cassidy of RBC Capital Markets, who has an ``underperform'' rating on the bank. ``They still have some heavy lifting going forward. We think others are going to follow. The housing problems are going to continue through 2008.''

U.S. home foreclosures rose 68 percent in November from a year earlier as adjustable-rate mortgages left subprime borrowers unable to meet higher payments, according to RealtyTrac Inc., an Irvine, California-based seller of housing information.

The bank said it plans to raise ``non-dilutive'' capital in the first quarter of this year to improve its so-called Tier 1 capital ratio, which is used to assess a bank's ability to withstand loan losses. The bank on Dec. 31 was above ``well- capitalized levels'' set by regulators, Treasurer Thomas Richlovsky said, without disclosing the figures.

The bank will continue making home loans through its 300 mortgage offices and 1,448 bank branches, spokeswoman Kristen Baird Adams said. It had about 34,000 employees as of Sept. 30, according to a regulatory filing.

California, Ohio

Most of National City's problem loans stem from markets including California where prices surged and then declined, Raskind said.

About one-third of the bank's branches are in Ohio and Michigan. Ohio has the third-highest foreclosure rate in the U.S., and Michigan ranked sixth, according to RealtyTrac Inc.

National City on Dec. 17 took a $200 million charge related to the declining value of mortgage securities and said it expects to set aside about $700 million in the fourth quarter to cover bad loans. The bank said it has ``elevated risk'' from loans made by its former First Franklin unit and its closed National City Home Equity business. National City sold First Franklin, which principally made loans to borrowers with less than prime credit, to Merrill Lynch in December 2006.

Washington Mutual, the biggest U.S. savings and loan, sold $3 billion of perpetual convertible preferred bonds last month to shore up its capital and slashed its dividend 73 percent after mortgage-market losses increased.

Bank of America Corp., the nation's second-largest bank behind Citigroup Inc., said in October it would stop making loans through brokers, a business called wholesale lending. The move will lead to 700 job cuts, Bank of America said.