National City shares drop by 63 percent

The bank calls the losses an ‘irrational reaction’ to other banks’ problems.

CLEVELAND (AP) — National City Corp. shares plummeted Monday as bank stocks tumbled amid another bank buyout, and the overall market plunged after a financial bailout package failed in the U.S. House.

National City shares closed down $2.35, or 63 percent, to $1.36 Monday in what the bank called an “irrational reaction.” The sharp decline comes after shares closed down 26 percent on Friday.

Early Monday, Wachovia Corp. became the latest big bank to be rescued from bad mortgage debt, agreeing to a Federal Deposit Insurance Corp.-brokered buyout of its banking operations by Citigroup Inc.

National City spokeswoman Kelly Wagner Amen said the stock decline is an irrational reaction to problems at other larger banks such as Wachovia and Washington Mutual.

“We are far better capitalized than Wachovia and other national banks,” Wagner Amen said.

National City has been hit hard this year by high-risk mortgage loans and was forced to arrange a $7 billion capital infusion in April.

National City reported a $1.76 billion loss in July for the second quarter. It has shifted away from risky mortgage lending since late last year.

“National City is well-positioned from a capital stance to address the market turmoil,” Wagner Amen said. “We feel we have not only the adequate capital but are in a position of strength to help our customers reach their financial goals.”

The drop in stock price came as several analysts upgraded National City’s stock to “outperform,” including Terry McEvoy of Oppenheimer & Co.

“I continue to feel the company has an adequate level of capital and reserves to absorb future loan losses,” he said.

He agreed that the company’s risk profile is different than that of Wachovia or Washington Mutual Inc., which collapsed under mounting losses.

“I understand the reaction to the stock price on Friday and today, but I think the move is unwarranted and the stock is undervalued at current prices,” McEvoy said.

He said a key indicator for National City and other banks will be deposit flow.

“A few months ago it was people moving money from bank to bank. Today, it’s bank to mattress,” McEvoy said. “All banks are vulnerable given the headlines.”