National City Corp. said it will raise $7 billion in capital on Monday, following the lead of other major lenders, after reporting a first quarter miss due primarily to provisions for future losses in the falling housing market.
Investors reacted by sending the bank's stock down $2.24, or 26.9 percent to $6.09 at 12:14 p.m. on the New York Stock Exchange.
The large U.S. Midwest regional bank said private equity firm Corsair Capital LLC was one of the principal investors, providing $985 million. The remaining $6.015 billion will come from other investors, including some of the bank's largest current institutional stock holders. Corsair will get a seat on National City's board as a result of the investment.
Under the terms of the deal, the bank will sell 126.2 million common shares at $5 each. It will also sell a total of 63,690 preferred shares at $100,000 each. Each preferred share will convert to 20,000 common shares.
National City's new funds will raise its Tier 1 capital - a measure of the bank's ability to sustain losses - to 11.40 percent from the current 6.65 percent. U.S. regulators require at least 6 percent in Tier 1 capital to qualify a bank as well-capitalized.
Corsair and certain other investors will have the option of buying additional stock, receiving five year warrants. Each can be exercised for 115 percent of the stock's closing price each day this week with an $8.50 cap.
National City also reported that it took a loss of $171 million, or 27 cents per share, compared with a net income of $319 million, or 50 cents per share a year earlier.
The bank attributed the loss primarily to a $1.4 billion provision for bad loans. The loss was offset by its sale of shares of Visa, Inc. for $772 million when the credit card network went public earlier this year.
While we are clearly disappointed by the quarter's weak profitability, we feel that it is both necessary and prudent to build reserves in anticipation of a continued difficult environment for housing-related loans, said chief executive Peter Raskind.