National City Corp. and Downey Financial Corp. are two financial institutions that were listed last week on "Who is next?," Richard X. Bove's infamous report of banks in peril. Some banks on Bove's list claim the Ladenburg Thalmann & Co. analyst's assertions are more fiction than fact, but no one can deny that NatCity and Downey Financial are facing difficult times. NatCity announced a larger-than-expected second-quarter $1.36 billion loss Thursday. Meanwhile Downey tapped a new CEO, who is tasked with exploring strategic alternatives after a loss of $218.9 million.
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NatCity, which has a strong presence in the hard-hit Midwest and Florida mortgage markets, is facing trouble from its provision for loan losses, which jumped more than tenfold, to $1.59 billion, from $145 million in 2007. To save money, the Cleveland bank slashed its dividend to a penny from 21 cents. Additionally, it raised $7 billion in new cash from a group of investors led by Corsair Capital LLC to beef up its capital base. But as the economy worsens and mortgage defaults continue, NatCity may have to follow through with its reported plans to shop assets to raise capital.
Meanwhile, the smaller Downey followed the footsteps of NatCity by posting a larger-than-expected loss of its own at $218.9 million. The main culprit for the loss -- as it was for NatCity -- was its provision for loan losses, which jumped to $249 million, up from $237 million last quarter. Provision for loan losses was just $617,000 in the second quarter of 2007. Retiring CEO Daniel Rosenthal will be replaced by COO Thomas E. Prince. But the problems Prince faces may be larger than the ones Rosenthal faced thanks to the continuing rise in mortgage defaults. - Gerald Magpily
See Dealscape: Bove battles BankAtlantic: Libel, opinion and the downside of fame
See Dealscape: National City and other banks to shop assets
See Bove report (pdf)
