National City Corp, a large U.S. Midwest bank, on Wednesday said third-quarter profit fell 80 percent, as mortgage losses mounted even after the sale of a subprime lending unit to Merrill Lynch & Co.
The ninth-largest U.S. bank also said it has eliminated 2,500 jobs, or roughly 7 percent of its work force, as it reduces costs companywide, with 1,700 of the cuts related to mortgages. Last month, the bank had said it was eliminating 1,300 mortgage jobs.
National City is based in Cleveland, Ohio. Its home state had the third-highest number of foreclosures nationwide in September, while Michigan, where the bank also has large operations, ranked fourth, according to RealtyTrac Inc.
Net income fell to $106 million, or 18 cents per share, from $526 million, or 86 cents, a year earlier. Results included a $152 million loss, or 25 cents per share, in mortgage banking.
Analysts on average forecast profit of 31 cents per share, according to Reuters Estimates.
Shares fell 91 cents to $23 in premarket trading.
Results were hurt by unprecedented disruption and weakness in the mortgage and housing markets, Chief Executive Peter Raskind said in a statement. Based on the difficult conditions in the financial markets, which we expect to persist in 2008, we have undertaken an aggressive review of our cost structure.
Spokeswoman Kristen Baird Adams said about 1,700 of the job cuts were in mortgage operations, and 800 in other divisions. In the third quarter, lending and noninterest income fell 15 percent, while expenses rose 3 percent.
FIRST FRANKLIN, MERRILL
Results also reflected losses related to its former First Franklin Financial Corp subprime unit. While National City sold the unit last December to Merrill Lynch for $1.3 billion, it kept several billion dollars of loans, which it is winding down.
Merrill Lynch on Wednesday posted a $2.24 billion third-quarter loss, after taking a larger-than-expected $7.9 billion write-down for subprime mortgages and other debt.
National City set aside $361 million for credit losses, up fivefold from a year earlier, as residential and home equity delinquencies, charge-offs and foreclosures increased. Net charge-offs rose to $141 million from $117 million.
The company expects share buybacks to be limited in the fourth quarter.
National City said it ended September with 1,442 branches and $154.2 billion of assets. It spent about $4 billion in the last year to buy Fidelity Bankshares Inc. and Harbor Florida Bancshares Inc. to add its first branches in Florida, and MAF Bancorp Inc to expand in the Chicago area.
Through Tuesday, National City shares had fallen 35 percent this year, compared with a 13 percent drop in the Philadelphia KBW Bank Index. (Additional reporting by Tim McLaughlin)