National City’s Purgatory

National City lingers now in purgatory- open for business as usual, but drifting toward insolvency. As the credit crisis works its way down to second tier banks, National City becomes the caricature for the regional banks that Washington Mutual and Lehman Brothers were for big banks.

For the fiscal third-quarter of 2008, national city reported losses, write-downs, loan loss builds and the elimination of 4,000 employees. Witness:

National City will cut about 4,000 jobs, or 14 percent of its workforce, over the next three years after posting a net loss of $729 million, or 85 cents a share, the Cleveland-based company said in a statement today.

National City’s provision for loan losses tripled to $1.18 billion in the third quarter from a year earlier. The company’s total deposits averaged $98.7 billion during the third quarter, declining less than $1 billion from the previous quarter and up $5.2 billion from a year earlier. The bank said new customers added in the quarter “partially offset declines in deposit balances in excess of FDIC insurance limits.”

You don’t really have to ask why loan loss provisions tripled, and you know that the new customers are old borrow-and-spend types seeking shelter from the credit storm,. The remainder of the loss comes from $844M in net charge-offs.

The provision for loan losses was $1.2B, down $408M, or 25 percent, over the preceding quarter. Net charge-offs were $844M million in the third quarter, up $104M due to $134M in write-downs from reclassifying loans to “held for sale.”

National City raised $9B in the second quarter, but didn’t bother this time around. Instead, the bank said it may join other banks in gang raping the American taxpayer. Witness:

Chief Executive Peter Raskind said the bank would consider participating in U. S. Treasury Secretary Henry Paulson’s plan to inject $250 billion into the banking system. Yet he said the bank’s capital levels are far above regulatory minimums, enough to cushion further credit problems tied to a weakened economy.

“We’ve got a ways to go and it probably gets worse before it gets better,” Raskind said, referring to the economy.

Well it certainly will get worse for National City, and no one can blame the short-sellers. They just smell blood:

National City Corporation has been the subject of much “will they or won’t they?” speculation during the past 6 months — that is, will they or won’t they follow in the footsteps of IndyMac, Washington Mutual, and Wachovia? Widespread suspicion that NCC would also fall prey to the ills of subprime has helped push the stock to a year-to-date loss of 82%.

That is not a typo. An 82 percent cliff dive with 26 percent of the decline coming in tandem with Washington Mutual’s collapse. Just as WaMu once did , National City is now bleeding red ink, and just as Wa Mu once did now they just sit and wait.