National City ( NCC ) slumped more than 5% to a 52-week low Wednesday after slashing jobs and its dividend by half to shore up more capital amid a tough mortgage market. The Cleveland-based bank reduced its quarterly dividend by 49% to 21 cents, a move that is "an important step to position the company properly for the future," it said. Nat City also has shut down its entire wholesale mortgage business, but will continue to originate mortgage loans directly to consumers. The move will eliminate about 900 positions, the company said on Wednesday. "We remain committed to the mortgage business," Chairman and CEO Peter Raskind said in a statement. "However, it is clear that origination volumes will be lower going forward, and we are configuring our mortgage business to operate profitably in that environment.
"With conditions expected to be quite challenging in 2008, the actions we have taken to date better position us to navigate through the environment and to capitalize on the many opportunities ahead," he added. In addition, Nat City intends to raise capital in the first quarter and has hired Goldman Sachs ( GS) as an adviser. The actions will "accelerate" its previously stated plans to increase capital ratios to the high end of their targeted ranges, it said. Nat City expects tangible common equity to range between 5% and 6% and Tier 1 risk-based capital in the range of 7% and 8%.
"We fully recognize that the dividend is an important element of return for shareholders, and we did not take the decision to reduce it lightly," Raskind continued. "However, our board and management strongly believe that this action is necessary to help meet the challenges ahead and to continue as a strong competitor in the financial services industry." Nat City's job cuts tally stands at about 3,400 employees so far. Like other struggling mortgage-centric banks such as Washington Mutual ( WM), Nat City has been hit hard by the deteriorating housing industry and credit crunch. Since August of last year, the bank has been painfully downsizing its mortgage business by drastically curtailing the production of non-agency eligible mortgage loans and exiting the broker-based mortgage lending. Nat City's third-quarter earnings plummeted by 80%, fettered by the disruption in the mortgage industry. The company's mortgage banking business posted a loss of $152 million. Even though it managed to sell its subprime lender, First Franklin, to Merrill Lynch ( MER ) last year before the subprime meltdown, it still holds a significant amount of nonprime loans on its balance sheet. In a December regulatory filing, Nat City set aside an extra $700 million for loans that have deteriorated since Sept. 30. Nat City also incurred about $200 million of charges in October and November in its mortgage business, due to lower loan sale revenue, "scratch-and-dent" losses, unfavorable mark-to-market adjustments and general poor mortgage market conditions, it said. Nat City expects total mortgage originations to range between $15 billion and $20 billion this year. Shares fell 89 cents to $15.57 in recent trading, a 52-week low.