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Near $160 million deficit on mortgage business cited, which falls in upper range of forecast
By Yalman Onaran and Elizabeth Hester Bloomberg News Service
Published on Monday, Sep 17, 2007
National City Corp. of Cleveland, Ohio's largest bank, said Monday it will lose close to $160 million in the third quarter on its mortgage business, the upper end of a range forecast earlier this month, after investor demand for loans dried up.
National City said Sept. 6 that the unit would post an after-tax loss between $130 million and $160 million, not including hedging results.
The loss ''is more likely to be around the high end of the range,'' the bank said Monday in a regulatory filing.
The number of Americans who may lose their homes to foreclosure reached a record in the second quarter as late payments by subprime borrowers surged to one out of every seven loans, the Mortgage Bankers Association said earlier this month. National City cut about 1,300 jobs this year as the company combined its home-equity business with the mortgage division and demand fell for loans that can't be sold to government agencies.
''We are not convinced that the company is only facing credit deterioration pressures from its subprime mortgage and national home equity portfolios,'' Christopher Mutascio, an analyst at Stifel Nicolaus & Co. who rates the shares ''hold,'' said in a research note Monday. ''We believe it is more broad-based than that.''
National City's stock has lost 29 percent this year. It rose 14 cents to $25.89 Monday.
National City's ''nonperforming assets,'' or those that are no longer paying interest, increased 20 percent to $172 million since the end of June, Mutascio wrote. More than half the increase came from the commercial construction portfolio, he said.
Total nonperforming assets rose from $732 million at the end of last year to $1.02 billion in August, the company said in the filing.
Mutascio reduced his estimates for National City's 2007 earnings per share to $2 from $2.35 and his expectations for 2008 to $2.30 from $2.65.
Net interest income, what the bank makes on lending and bor rowing money, ''is expected to be relatively flat for the third quarter due to higher levels of earning assets,'' National City said in the filing. The bank also said that because of falling investor demand, it decided to hold on to some home-equity loans it originally planned to sell.
''Hedging'' activities resulted in an after-tax gain of $29 million in the first two months of the quarter, the company said.
National City sold its First Franklin Financial Corp. division to Merrill Lynch & Co. for $1.3 billion last year and still holds some of the mortgages.
''Risk levels continue to be modestly elevated in the non- prime (First Franklin) first lien portfolio,'' National City said in the filing.
National City also said it plans to write down the value of some ''Alt-A'' mortgages, loans that are often made to people with good credit records who don't document their income, and buyers of investment properties.
At least 110 mortgage companies have sought buyers or halted lending since the start of 2006, Bloomberg News research data shows.
National City Corp. of Cleveland, Ohio's largest bank, said Monday it will lose close to $160 million in the third quarter on its mortgage business, the upper end of a range forecast earlier this month, after investor demand for loans dried up.
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