Chairman Peter Raskind said National City Corp. has learned some lessons from the subprime mortgage storm that devastated the bank's share price and caught the attention of federal regulators.
"We will be operating the bank differently and better in the future," said Mr. Raskind, who also is president and CEO of Cleveland-based National City Corp.
It's not that we don't believe you, or want to believe you, but we've seen where people in charge will say anything in an effort to build confidence. Then, later, everyone finds out it wasn't true.
National City will return to its conservative roots, he said, scaling back its operation from a nationwide audience to a smaller footprint that is limited to the Midwest and the east coast of Florida.
The bank has gotten away from the aggressive mortgage-related investments that placed it in financial trouble when the housing market turned sour.
"We're in a part of the country that has slow growth," said Mr. Raskind. The previous strategy was to drive earnings growth by moving into hotter housing markets.
Is that what it was?
"I became CEO at the end of last July," he said. "A week later the mortgage markets and the capital markets began to melt down."
The fundamental challenge National City faces is a portfolio of unprofitable mortgage loans it has been unable to get off its books. The bank lost $333 million in the fourth quarter of 2007 and $171 million in the first quarter of 2008.
What does that $333 million consist of? Just the stock price? The article goes on to discuss the $7 billion intake from Corsair, and the memorandum of understanding with the Office of the Comptroller of the Currency and the Federal Reserve Bank.
"There is no reason for anyone to have a shred of doubt about the core stability and safety of the company and we hope the $7 billion in capital will underline that," Mr. Raskind said. "Customers should have no doubt of our ability or our desire to serve them well into the future."
Mr. Raskind declined to discuss what arrangement the bank has made with regulators and provided no clue of how long it might take to turn the bank around.
His words ring of reassurance. And, I'm sure he believes them. However, it's too soon to put too much stock into his statements. The article discusses the situation with the bank's stock price which was at $34.00 last year at this time, and the cutting of dividends.
The company has 32,000 total employees, with 3,000 employees in Western Pennsylvania. While its losses have led to hundreds of employees being laid off, the chairman said there have been very few if any job losses in Western Pennsylvania.
Mr. Raskind said some customers in Western Pennsylvania who have home equity loans with National City have had their home equity lines of credit frozen in recent months, but it had little to do with the bank's financial health or declining real estate values and more to do with the bank limiting its risk.
National City is very much still in the mortgage business, he said, but in a different and smaller way. For instance, the bank will no longer work through brokers.
"We've scaled back in terms of size and volume," he said. "The national [mortgage] businesses we were in are shut down. However, we still have the [unprofitable] mortgages to deal with.
"Now we are simply focused on doing the best job we can to minimize the losses on our liquidating portfolio of mortgage loans. We are carefully thinking through all alternatives available."
So, we now have reassurances to the stockholders, the employees, and the depositors. Sort of.
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