National City slashes dividend, 900 mortgage jobs

NEW YORK (Reuters) - National City Corp (NCC.N), one of the 10 largest U.S. banks, said on Wednesday it will cut its common stock dividend 49 percent and eliminate 900 jobs as it stops offering mortgages through brokers.

The job cuts affect about one-seventh of National City's 6,274-person mortgage business, and are in addition to 2,500 job losses announced in last year's second half. The bank said it employs 32,804 people overall.

National City plans to keep making home loans, emphasizing mortgages considered less likely to go into default, but expects loan volume to fall by more than half in 2008. It will also seek more capital by March to cope with deteriorating credit markets, and hired Goldman Sachs & Co as an adviser.

The Cleveland-based bank said its quarterly dividend will fall to 21 cents per share from 41 cents, following increases in each of the previous 15 years.

"It's part of a broader set of strategies to manage the capital position, and navigate through a very difficult period for the entire industry, and beyond," Chief Executive Peter Raskind said in an interview. "Pressure in the housing market is not going to abate any time soon," including in 2008.

National City is one of many mortgage lenders to suffer write-downs, build reserves for bad loans, and cut jobs.

The bank operates about 1,445 branches, mainly in the Midwest. It has major operations in Florida, Ohio and Michigan, which ranked second, third and fifth nationwide in foreclosures in November, according to RealtyTrac Inc.

National City joined Fannie Mae (FNM.N), Freddie Mac (FRE.N), Washington Mutual Inc (WM.N) and IndyMac Bancorp Inc (IMB.N) among large mortgage companies to slash their dividends since October. The 41 cents per share dividend had equated to a 10 percent yield.

"Now it comes down to growing the non-mortgage businesses -- retail, commercial and asset management," said Terry McEvoy, an analyst at Oppenheimer & Co in Portland, Maine, who has a "neutral" rating on National City.

"Management will be in the penalty box because it raised its dividend and bought back stock last year, and is now doing the exact opposite," he added. McEvoy said National City might need to raise $500 million of capital.

In morning trading, National City shares fell 92 cents, or 5.6 percent, to $15.54. The stock fell 55 percent last year.

MERRILL LYNCH SALE

National City expects to make about $15 billion to $20 billion of mortgage loans in 2008. That compares with about $43.9 billion for the first 11 months of 2007. The company recently merged its home equity and mortgage lending units.

In last year's third quarter, National City lost $19 million, hurt by losses related to its former First Franklin Financial Corp subprime mortgage unit.

While National City sold the unit in December 2006 to Merrill Lynch & Co (MER.N) for $1.3 billion, it kept several billion dollars of loans, and has been trying to wind them down.

"It is fair to say we've configured the mortgage business the way we want it to be," Raskind said.

National City said its capital-raising plan will not dilute shareholders, and will help it reach the high end of a targeted 7 percent to 8 percent ratio for Tier-1 risk-based capital.

Regulators consider the capital level a measure of ensuring that banks have sufficient funds to cover losses.

National City on Dec 17 said it took a $200 million charge because the value of mortgage securities had fallen, and would set aside $700 million for loan losses in the fourth quarter.

Raskind on Wednesday called write-downs on mortgages held for sale "largely behind us."

(Reporting by Jonathan Stempel; editing by Gerald E. McCormick and Dave Zimmerman)