National City deal good news to region

By TERESA DIXON MURRAY and PETER KROUSE

The investment by Corsair Capital means headquarters will stay in Cleveland.

National City Corp. struck a deal Sunday that will pump $6 billion to $7 billion into the Cleveland bank.

Corsair Capital LLC of New York, a spin-off of JPMorgan Chase that specializes in “distressed” banks, will give National City a cushion of capital to help protect it against mounting mortgage losses. Other smaller investors will put in money as well. The deal will preserve the 163-year-old bank’s Cleveland headquarters — a huge relief to 7,800 local workers and a community that doesn’t want to lose another Fortune 500 company.

In fact, it’s perhaps the best possible outcome for everyone involved except stockholders, who will see their stake in the $5 billion bank diluted.

Shareholders, employees and the community have awaited an announcement from the troubled bank for weeks, fearing an outright sellout to another bank. That would have been just about the worst option for most people who care about the corporate giant.

Corsair and perhaps a dozen other investors will own a 50 percent stake in National City. Corsair will own 9.9 percent. The company’s dividend, now 21 cents, will be cut to a penny.

Corsair specializes in “complex and distressed situations,” the company says on its Web site, explaining that its partners and advisers have “significant experience” dealing with U.S. financial institutions and they’ve been involved in “the successful restructurings of banks, insurance companies and specialty finance companies.”

Up until 2006, Corsair was a subsidiary of banking heavyweight J.P. Morgan Chase Co. JPMorgan spun off Corsair Capital as an independent business. Corsair takes stakes in banks and other financial companies such as insurers, asset managers and specialty lenders, both in the United States and around the world.

Among companies that had been showing interest in National City were KeyCorp and Fifth Third Bancorp. A purchase by either of those Ohio banks probably would have meant the loss of thousands of Greater Cleveland jobs. Other potential investors included Scotiabank of Toronto, Wells Fargo Co. of San Francisco and Warburg Pincus, a New York private investor.

Other companies that talked with National City either were scared off the $25 billion in risky loans the bank can’t sell and may never collect on or were hoping for the Federal Reserve to intervene. The Fed is guaranteeing virtually all of JPMorgan Chase’s $30 billion purchase last month of Bear Stearns.

In recent months, banks and other financial companies nationwide have been lining up with their hands out for help from private investors. Citigroup, Washington Mutual, Merrill Lynch, Morgan Stanley and Lehman Brothers are among those who’ve received relief from investors as close as New York and as far away as Abu Dhabi, China and Singapore.

National City, Ohio’s largest bank and 10th-largest in the nation, has been scrambling to raise capital all year to cover rising losses from lousy home loans. In January, it raised $650 million through a stock sale and saved itself about $140 million by cutting the common stock dividend paid to investors nearly in half.

But that wasn’t enough as regulators became concerned that National City’s capital reserves, which serve as a buffer against losses, fell perilously close to the minimum acceptable amount. On April 1, the bank said it was searching for “strategic alternatives.”

National City, one of only eight remaining Fortune 500 companies in Northeast Ohio, has watched its stock price plunge nearly 80 percent in the past year as its losses from the collapse of the mortgage market reached hundreds of millions of dollars. The bank’s market value this month sank to $5 billion, down from $30 billion to $40 billion about 18 months ago.