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BL/ National City Nears Accord With Corsair for $7 Billion Infusion

By David Mildenberg and Elizabeth Hester

April 20 (Bloomberg) -- National City Corp., Ohio's largest bank, may receive $6 billion to $7 billion from a group led by Corsair Capital LLC to help the company cope with losses tied to subprime loans, according to a person familiar with the matter.

Talks about the investment are nearing completion, and the new funds would be used to boost the bank's capital, said the person, who didn't want to be named because the discussions are private. An announcement of the transaction is expected to be made tomorrow, the person said.

The new investors will pay $5 a share, about 40 percent less than National City's closing price on April 18, and take ownership of about half of the company's stock, the person said. Corsair Capital Vice Chairman Richard Thornburg will be added to the National City board, the person said.

The bank joins lenders and securities firms including Citigroup Inc., Wachovia Corp. and Merrill Lynch & Co. that raised $163 billion to replenish capital after losses tied to subprime home loans. The world's biggest financial companies have disclosed more than $250 billion of writedowns and credit losses, according to data compiled by Bloomberg.

Corsair is a private-equity firm that has invested in financial services companies since its founding in 1993 by JPMorgan Chase & Co., according to its Web site. Holdings include stakes in banks in Argentina, Brazil, Korea, Poland and Sweden.

Ignacio Jayanti, president of Corsair, didn't immediately respond to a call seeking comment. National City spokeswoman Kristen Baird Adams declined comment. Parts of the transaction were reported earlier by the Financial Times.

Subprime Loans

National City faced pressure to complete a transaction or discuss the status of negotiations before it reports its first- quarter results on April 22, said Scott Fine, a finance professor at Case Western Reserve University in Cleveland.

National City ranked among the 10 biggest originators during 2006 of subprime mortgages, which are made to people with the weakest credit. The bank sold its subprime loan unit, First Franklin Financial, at the end of 2006 to Merrill Lynch, where it contributed to a record loss at the New York-based securities firm. The bank kept some of the loans First Franklin originated, which saddled National City with continued losses.

National City said April 2 it hired Goldman Sachs Group Inc. as an adviser to consider ``a range of strategic alternatives.'' Chief Executive Officer Peter Raskind told the Cleveland Plain Dealer newspaper on April 11 that a sale was one of the options.

National City sold $400 million of bonds in January as part of a plan to raise capital after posting a $333 million fourth- quarter loss. Standard & Poor's Corp. on March 21 lowered its outlook for National City to negative from stable, citing expected losses on home loans.

The bank has lost about three-quarters of its market value in the past year, leaving the company as the worst performer in the 24-stock KBW Bank Index. National City fell 16 cents to $8.33 on April 18 in New York Stock Exchange composite trading.

The bank's $150 billion in assets and network of about 1,400 branches makes it attractive to potential investors, Case Western's Fine said in an April 18 interview.

To contact the reporters on this story: David Mildenberg in Charlotte, North Carolina, at [e-mail]; Elizabeth Hester in New York at [e-mail].

Last Updated: April 20, 2008 20:24 EDT