National City Sets Aside $700M, Takes $200M Charge

National City Corp. announced it was taking a $200 million charge and setting aside $700 million for loan-loss provisions in the fourth quarter, but expects the worst is already behind the company.

After reserving $361 million for loan losses in the third quarter, the Cleveland-based company said it was putting aside roughly $700 million for potential losses stemming from delinquencies and defaults.

In a filing with the Securities and Exchange Commission (SEC), National City also said it would take $200 million in charges related to residential loans on its warehouse lines that either were sold to investors or transferred to a portfolio in October and November.

With the completion of those sales and transfers, National City indicated that it does not anticipate further losses.

The company reported total charge-offs - loans written off as not being repaid - jumped to $102 million in November, up from $87 million in the previous month.

According to the SEC filing, charge-offs on residential mortgages and home equity products accounted for a total of $51 million during November.

That represents a 13% increase from the $45 million in October and more than twice the $21 million of charge-offs from the same month one year earlier.

National City said that its runoff portfolios of nonprime mortgages still have "elevated risk," and that nonprime and home equity loans that were moved to its balance sheet during the third quarter deteriorated beyond the $361 million it had previously disclosed.

In November, National City Corp. said it would be forced to revise its third quarter results after reporting an 80% decline in quarterly profits in order to reflect losses over two major legal battles that include the largest antitrust settlement in U.S. history and a class-action lawsuit over employee wages and hours.

The company said it would record a $157 million charge due to its share of a $2.25 billion antitrust settlement by Visa Inc. with American Express Co.

The settlement between the companies has been described as the largest antitrust settlement in U.S. history, pending approval by Visa's member banks.

Meanwhile, National City also set aside a $25 million reserve based on a proposed settlement agreement in an unrelated class-action lawsuit with employees over wages and hours.

The two legal matters forced National City to report a net loss of $19 million for the third quarter, compared to an initial report of a net profit of $106 million for that period.

For the year-to-date period, the company reduced its reported net income to $647 million from the $772 million profit initially recorded.

The already anemic results for the quarter had been largely due to a $152 million quarterly loss in National City's mortgage banking division.

As of September 30, the company reported a delinquency rate of 4.03%, up from 3.25% in the prior quarter, and 3.19% a year ago.

The challenges the company faces have also affected its workforce, resulting in the elimination of approximately 2,500 positions at a cost of roughly $125 million in related expenses.

 Bill Arce

www.realestatelatino.com