Ahead of the Bell: National City upgraded

National City shares dropped 26 percent on Friday to close at $3.71, as investor anxiety about the financial sector heightened after the emergency sale of Washington Mutual Inc. the day before.

"We do not feel National City is seeing a mass exodus of depositors, their loan portfolio is more diversified and better quality than WaMu's and the recent sell-off triggered us to upgrade the stock to 'Outperform' with a $5 target price," wrote McEvoy in a note to investors. "National City has been proactively managing their liquidity position, and with over 4 million household customers and 1,400 branches, has a strong base of core deposits."

BMO Capital Markets analyst Lana Chan said the bank has enough capital and reserves to absorb estimated potential losses in its loan portfolio. The bank also is in better shape than WaMu was prior to its seizure by regulators and the subsequent sale of its deposits to JPMorgan Chase & Co., Chan said. The analyst added that National City has more capital and less exposure to toxic mortgage assets.

Additionally, the Cleveland-based bank stands to benefit from the government's proposed $700 billion rescue plan, Chan said. Lawmakers are to vote on the bailout package on Monday.

"The proposed government bailout plan will be critical for National City, as it will hopefully be a large step in the right direction in stabilizing the mortgage market and rebuilding confidence," Chan wrote in a client note.

National City shares slipped 21 cents, or 5.7 percent, to $3.50 in pre-market trading. Shares are down 78 percent so far this year.