Pent-Up Shorts Ravage Regional Banks

One bright spot in the sector was National City (NCC Quote). The stock was up as much as 26% earlier in the day as rumors became clearer that the Cleveland bank is looking to find a buyer. The Wall Street Journal reported on Thursday that PNC Financial Services (PNC Quote) and Bank of Nova Scotia were considering making offers.

Analysts have been fairly positive on Nat City lately, despite its significant exposure to subprime mortgages and brokered-home equity loans. Several analysts upgraded the stock on Sept. 26 -- the day after Washington Mutual failed and was subsequently bought by JPMorgan Chase -- on the basis that Nat City does indeed have sufficient capital.

But as the liquidity crisis rears its ugly head once more in the banking sector, even banks with a fair amount of capital such as Nat City have been scrambling to find a buyer. The company had tried without success to find a buyer this spring. Instead it ended up raising $7 billion from a group of investors led by Corsair Capital.

Shields said the rumors that Nat City is looking to sell itself has been "one of the worst kept secrets" over the past few weeks.