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Stock plunge makes National City ‘an attractive target
Closing today at $7.52, National City’s stock is worth 57 percent less than it was three weeks ago when it was trading at $17.40. Shares are down 80 percent from their high a year ago, when they closed at $38.49 on March 1, 2007. Shares haven’t closed this low since January 1991.
Today’s eye-popping stock plunge makes National City more vulnerable to being bought, Aggarwal said.
“For anybody who’s thinking about buying them, they’re a lot cheaper today. They’re an attractive target,” Aggarwal said, adding that’s particularly true because “they have a reputation for being well-run.”
The mad scramble to sell National City stock, which started this morning almost as soon as trading opened, followed Sunday’s shocking news that mammoth investment bank Bear Stearns Cos. was nearly bankrupt and was being bailed out by JPMorgan Chase for a slim $2 a share. Bear Stearns’ stock had closed at $30 on Friday.
In a frightening free-fall in the morning, National City shares plunged from being down about 15 percent at about 10 a.m. to being down 44 percent just 30 minutes later. Shares recovered a bit before declining again in the afternoon. For the day, trading volume was nearly five times normal.
Investors clearly are spooked by any financial institution that has heavy exposure to the mortgage industry, as does National City.
“We would certainly surmise that the volatility we’ve experienced in our share price today was related to the market reaction to the Bear Stearns announcement,” National City spokeswoman Kristen Baird Adams said. ” . . . There was also a lot of speculation last week that may have come into play as well.”
While most financial stocks slipped today, the declines were modest, compared with National City’s. Among locally traded stocks, Huntington dropped 11 percent, Fifth Third dropped 3 percent, and FirstMerit and Third Federal each were down about 1 percent. Key actually gained 0.3 percent.
National City’s stock was among the most ravaged today nationwide. Other big names that had a bad day: Lehman Bros. lost 19 percent and Washington Mutual lost 13 percent.
National City’s mortgage exposure has already taken its toll. After becoming intoxicated on $1 billion a year in profits just from home loans a few years ago, National City’s mortgage business last year lost more than a half billion dollars. Late last year, it eliminated 10 percent of its 32,000-personal national workforce. Reports surfaced last week that the 163-year-old bank, the largest in Ohio, was shopping for a buyer.
Because investors have little confidence in home loans that were originated under the backdrop of past loose lending standards, National City is sitting on $17 billion of loans that could be worth nickels on the dollar. Further, National City is bracing for a potential rise in defaults among borrowers as the economy continues to struggle.
The bank’s mounting woes led the credit rating agency Moody’s Investors Service late last week to downgrade National City’s investment-grade rating to “A3″ from “A2.” Moody’s also cut the bank’s financial strength rating deeper into junk status, from B- to C+. Its rating on bank deposits was cut from A1 to A2. All the ratings remain under review for a possible further downgrade.
The bank’s stock price hemorrhage has no effect on consumer deposits, however. All money in accounts such as savings and checking accounts are insured by the Federal Deposit Insurance Corp. up to $100,000 per depositor per bank. Certain retirement accounts, such as individual retirement accounts, are insured up to $250,000 per depositor per insured bank.
While National City desperately needs capital — it hired Goldman Sachs earlier this year to raise $1 billion — it’s not clear whether the bank will get a cash infusion this week from the initial public offering of Visa Inc., of which it is part owner.
Numerous banks are expected to get a piece of Visa’s IPO, which is expected to raise up to $19 billion, a U.S. record. National City was expecting to sell 9.9 million Visa shares and make about $416 million. The recent market chaos could push back the IPO, although there was no indication today that it would be delayed.
National City will discuss its souring finances in more detail on April 22. The bank set the date for its first-quarter earnings announcement unusually early this quarter.
National City’s financial results won’t be the only thing in the news that day. It’s also the day of the all-important Democratic presidential primary in Pennsylvania.
