Capital Markets

National City Gets a $7B Infusion

Latest financial company to boost capital position draws $985 million from Corsair Capital.
Stephen TaubApril 21, 2008

National City Corp. is the latest financial giant to trying solidifying its position with a major capital infusion. The Cleveland-based banking giant said it is raising of $7 billion, including $985 million of private equity capital from Corsair Capital, which specializes in the financial services industry.

Corsair Vice Chairman Richard E. Thornburgh will join National City’s board, the company said.

The balance is being purchased by other investors, including several of National City’s largest current institutional stockholders.

National City said the new capital will increase its capital ratios well above the high end of its targeted ranges. For example, its Tier 1 risk-based capital ratio will increase to 11.40 percent from 6.65 percent at March 31, placing it well above its peer group.

The bank also said it would cut its dividend to one cent a share from the current 21 cents.

“This strategic raising of equity capital provides National City with the financial flexibility to continue investing in and growing our core businesses, which are delivering solid results, while addressing the asset quality challenges posed by the disruptions in the credit and housing markets,” said National City’s chairman, president, and CEO, Peter E. Raskind. “In addition, while we fully recognize that the dividend is an important element of return for our stockholders, the dividend reduction is consistent with our efforts to strengthen our capital position and is prudent given this environment.”

In the financing, National City will issue 126.2 million shares of common stock at a purchase price of $5 per share. This is 40 percent below its Friday closing price of $8.33.

National City’s common stock continued to trade above $6 on Monday after the deal was officially announced.

This is what happened to Washington Mutual’s shares when it announced its dilutive financing deal two weeks ago. And, of course, Bear Stearns traded well above the initial price JPMorgan Chase agreed to pay the investment bank, forcing JPMorgan to increase its buyout price fivefold.

Also under the new financing, National City will issue an aggregate of 63,690 shares of contingent convertible perpetual non-cumulative preferred xtock, Series G, at a purchase price of $100,000 per share. Each share of convertible preferred stock will automatically convert into 20,000 shares of the company’s common stock.

In addition, Corsair Capital and certain other participating investors will receive warrants with an exercise price of 115 percent of the company’s average closing price for the five-trading-day period beginning Monday, April 21, 2008, with a cap of $8.50 per share. These warrants have a term of five years. The warrants will be exercisable after certain stockholder and regulatory approvals are received.