Home > Stock Analysis

National City: Losses Made Simple

Posted: Sep 02, 2008 13:23 PM by Greg Sushinsky

Tickers in this Article: C, WM, KEY, NCC, FRE, FNM

National City (NYSE:NCC), a regional Midwest bank, continues to suffer staggering loses and doesn't look to be recovering any time soon. The climate for mortgage lenders and bank stocks continues to be extremely difficult, which should keep investors away for the near term and possibly longer. Will this stock be viable again, and if so, when?

Get Free Stock Analysis By Email

National City was chewed up in the mortgage lending turbulence of the last year. Its customer base is concentrated in the economically struggling states of Ohio, Indiana, Michigan, Pennsylvania, Missouri, Wisconsin and Kentucky, along with added exposure in Florida. Although traditionally a bank with moderate-to-conservative lending practices, National City unfortunately made heavy loans in the subprime market and was, like so many banks, badly burned by the decision. (For more on the subprime fallout, read out Subprime Mortgages Feature.)

Recent History of Losses
The proof of National City's troubles are in the numbers: How do losses of $1.76 billion in the last quarter sit with you? This works out to $2.45 per share, and is characteristic of the mammoth write downs other battered banks and mortgage companies have been reporting, such as KeyCorp's (NYSE:KEY) KeyBank or the infamous Washington Mutual (NYSE:WM).

This reported loss, which includes write downs of unrecoverable subprime mortgage loans, follows more modest reported losses of $171 million and $333 million going back successive quarters. The modest $19 million loss reported at the beginning of the trailing year, after the third quarter last year (2007), proved merely a prelude. This cascading total of has unfortunately been common with the financials this year. Other financials either acknowledged or wrote down their portfolios earlier, such as Washington Mutual and Citigroup (NYSE:C), which reported a series of large write downs.

A Year of Meltdowns, Not write downs
With billions being successively written off by major financials each quarter, we have seen a meltdown in their stock prices and so too, of course, of their market caps. National City has been chopped down from a year high of nearly $29 a share to as low as $2.99, and has fallen from its five-year nearly constant price of around $35 per share. Market cap has been whittled accordingly, down to a mere $3.75 billion, a tenth of its previous value, and the dividend has been sliced and re-sliced, leaving little solace for investors. (To learn more, read Is Your Dividend at Risk?)

This stock price haircut, more like a violent buzz job, is in keeping with those given to Washington Mutual, which went from $39 to $3, and even erstwhile Citigroup, which has fallen from a high of $49 a share to $14.

Future Prospects (If Any)
It's hard to have any hope as an investor in National City or many other financials. Each quarter despite promises that "the worst is over," more write downs have come. However, one can turn to the systemic turbulence the overall market is addressing with Freddie Mac (NYSE:FRE) and Fannie Mae (NYSE:FNM); the two mega-lenders still have significant capital resources, while there is also serious talk of shoring up the system as well with additional government capital. (Learn more on these two companies in Fannie Mae And Freddie Mac, Boon Or Boom?)

With the vitality of the U.S. financial system at stake, and mortgage lending a key component of this, there are indications that we are approaching the bottom of this crisis. Although National City is going through the same crisis as other banks, it has also been historically well-managed, and if it can make it through this uncharacteristic period of bad subprime loans until the Midwest economy strengthens, there will be hope for shareholders that the bank can get on track again.

This is not a given, however, and it depends heavily on the health of overall U.S. banking and the financial industry going forward.

By Greg Sushinsky

Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.

Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinky's literary work, see http://writing.gregsushinsky.com/.

Rate this Article: Your Rating: Overall Rating: Vote Now!

MORE STOCK ANALYSIS