National City shares rise after analyst upgrade
NEW YORK—National City Corp. shares jumped Monday after an analyst upgraded the stock, saying a $7 billion investment in the bank last week will allow it to scrub its balance sheet of bad debt faster.
Shares in the Cleveland-based bank rose 18 cents, or 2.9 percent, to close at $6.50. The gains helped the stock move further away from its 12-month low of $5.87, set last week when concerns that bad mortgage loans could lead to a potential sale.
"In our view, the bad news is now reflected in the stock, and we believe National City has taken more than adequate action to strengthen its balance sheet," BMO Capital markets analyst Lana Chan said in a note to investors Monday.
She upgraded the stock to "outperform" and raised her 12-month price target to $9 from $7.
The steps to which she is referring include a $7 billion investment from private equity firms, secured last Monday. The move heavily dilutes the ownership stakes of existing shareholders but provides the company with much-needed money.
Chan said National City can now "absorb an estimated $5 billion of losses within its 'higher-risk' loans, while leaving it well capitalized."
Banks have to have a certain amount of money on their books that they can access quickly to cover withdrawals and expected losses on bad loans.
National City was heavily exposed to the nation's troubled mortgage and housing woes, but it has cut jobs and moved away from broker-originated subprime lending.
On Jan. 2, National City disclosed it was shutting down its wholesale mortgage division, eliminating 900 jobs, due to weakened housing and credit markets. In all, National City eliminated about 3,400 jobs over the past few months.
