National City Corp. reports second-quarter earnings Thursday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Like many other banks, National City is facing mounting problems because of rising defaults in its mortgage portfolio. In April, National City moved It raised $7 billion in new capital from a group of investors led by Corsair Capital LLC to shore up its capital base to offset mortgage-related losses.
National City also cut its dividend to 1 cent per share from 21 cents to help strengthen its capital position.
Mortgages have increasingly defaulted over the past year, and National City has been among the hardest hit because its geographic footprint includes areas stung most by weakening real estate markets, such as the Midwest.
BY THE NUMBERS: Analysts polled by Thomson Financial, on average, forecast a loss of 26 cents per share for the quarter on revenue of $1.78 billion.
ANALYSTS' TAKE: "We think National City's (second-quarter) earnings should continue to be dominated by deterioration in several of the banks loan portfolios and the need to build reserves for bad loans," Deutsche Bank analyst Mike Mayo wrote in a research note.
National City's charge-off ratio will likely increase to 2.2 percent during the second quarter, from 1.87 percent during the first quarter, Mayo wrote in the note.
Charge-off ratio compares the amount of loans written off as not being repaid to a bank's total loan portfolio. Often the bulk of loan-loss provisions are used to cover charge-offs. The remaining provisions are placed in reserve to cover future losses.
Mayo estimates National City will lose 35 cents per share during the second quarter.
WHAT'S AHEAD: Lehman Brothers analyst Jason Goldberg wrote in a research note that investors should keep an eye on what National City might do with lending portfolios they are trying to reduce or sell. Options include creating a newly chartered banking unit to hold the troubled assets, setting up a tracking stock or an outright sale of the assets.
Goldberg estimates the portfolios include $5 billion in subprime mortgages _ loans given to customers with poor credit history _ $12 billion in home equity products and $3 billion in construction loans.
Goldberg expects National City to lose 10 cents per share during the second quarter and 32 cents per share for the full year.
STOCK PERFORMANCE: Shares of National City fell 52 percent during the second quarter amid continued weakness in the mortgage markets.
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