Give Wachovia’s board credit for honesty. The board fired Ken Thompson, who had been chief executive since 2001, and did not mince words in explaining why he was leaving.

It is not clear what was new — the news release claims that nothing was — but this comes only weeks after the board stripped him of the chairman’s title.

Mr. Thompson’s greatest error of judgment was the 2006 acquisition of Golden West, an aggressive mortgage lender that was a leader in offering pay option mortgages — the ones where a borrower could pay less than the interest owed — in California and Florida.

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LOS ANGELES - More U.S. homeowners fell behind on mortgage payments last month, driving the number of homes facing foreclosure up 65 percent versus the same month last year and contributing to a deepening slide in home values, a research company said Tuesday.

Nationwide, 243,353 homes received at least one foreclosure-related filing in April, up 65 percent from 147,708 in the same month last year and up 4 percent since March, RealtyTrac Inc. said.

Nevada, Arizona, California and Florida were among the hardest hit states, with metropolitan areas in California and Florida accounting for nine of the top 10 areas with the highest rate of foreclosure, the company said.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions.

One in every 519 U.S. households received a foreclosure filing in April. Foreclosure filings increased from a year earlier in all but eight states.

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with fewer options to avoid foreclosure. Many can’t find buyers or owe more than their home is worth and can’t get refinanced into an affordable loan.

Efforts by government and the mortgage industry to stem the tide of foreclosures aren’t keeping up with the rising number of troubled homeowners.

The April data show nearly half of the properties received an initial notice of default, suggesting many homes were new entrants to the foreclosure process.

“We’re still sitting at roughly the same percentage of loans handled in any way successfully as we were a year ago, and the volume (of foreclosure filings) still keeps going up,” said Rick Sharga, RealtyTrac’s vice president of marketing. “It’s apparent that what they’ve tried so far isn’t working.”

The U.S. House passed a bill last week that would offer government insurance on $300 billion in new mortgages to refinance loans for an estimated half-million borrowers facing foreclosure, particularly those who now owe more than their houses are worth because of declining values.

House lawmakers also passed a bill that would send $15 billion to states to buy and fix foreclosed homes.

Still, should the homeowner aid package clear the Senate, it faces a potential hurdle in the White House, which has threatened to veto the plan, arguing it’s too risky and amounts to a lender bailout.

Even if a legislative compromise is reached, it could come too late for homeowners with adjustable-rate mortgages scheduled to reset to higher rates this month and the next.

More than 1 million home foreclosures are forecast for 2008.

“It doesn’t look like the volume is going to slow down any time soon,” Sharga said.

More than 54,500 properties were repossessed by lenders nationwide in April. In all, about 2 percent of U.S. households were in some stage of foreclosure during the month, RealtyTrac said.

Still, as foreclosed properties pile up, they add to the inventory of homes on the market and can drag down home prices. The impact is felt mostly in regions where foreclosures are concentrated, such as Southern California, the Las Vegas area, South Florida and parts of Arizona.

Nevada posted the worst foreclosure rate in the nation, with one in every 146 households receiving a foreclosure-related notice last month, nearly four times the national rate.

The number of properties with a filing jumped 95 percent versus April last year but declined 5 percent from March.

California had the most properties facing foreclosure at 64,683, an increase of 112 percent from April 2007. The number of properties declined less than 1 percent from March.

The state posted the second-highest foreclosure rate in the country, with one in every 204 households receiving a foreclosure-related notice.

California metro areas accounted for six of the 10 U.S. metropolitan areas with the highest foreclosure rates, led by Merced, with one in every 66 households receiving a foreclosure notice.

Arizona had the third-highest foreclosure rate, with one in every 224 households reporting a foreclosure filing in April. A total of 11,620 homes reported at least one filing, up nearly 181 percent from a year earlier and up 26 percent from the previous month.

Like Las Vegas and inland regions in California, areas of Arizona saw a sharp run-up in speculator-driven home prices and new home construction during the housing boom.

Florida had 35,264 homes reporting at least one foreclosure filing last month, a 146 percent jump from a year earlier and a 17 percent hike from March. That translates into a foreclosure rate of one in every 242 households, the fourth-highest in the nation.

The other states among the 10 with the highest foreclosure rates in April were Colorado, Maryland, Georgia, Ohio, Michigan and Massachusetts.

Mortgage industry executives were skeptical, however, since only borrowers who had not been in arrears before their mortgage rates increased could qualify. That doubt was prescient: As of last month, fewer than 5,000 borrowers had taken advantage of the plan, the Secure program of the Federal Housing Administration, to escape mortgages on which they had become delinquent.

Last month, the housing agency said that it would relax delinquency restrictions for the Secure program. Whether the new changes will be enough to meet the administration’s original goals, however, remains a subject of debate.

The basics of the program are unchanged. Borrowers who face rising interest rates on their adjustable-rate loans can refinance those loans, taking out less costly fixed-rate mortgages from the agency, which are designed mostly for borrowers who have relatively little down-payment money available.

Many of those currently facing foreclosure have recently been hit with sharp increases in their adjustable-rate mortgage payments, or are about to be.

Advocates for homeowners say that the best way for such borrowers to remain in their homes is to stabilize their loan payments at levels they were able to afford before the adjustable-rate mortgages were readjusted.

“We’re trying to loosen up the eligibility” by changing the arrears policy, said Meg Burns, the agency’s director of the Office of Single Family Program Development. “We’d heard it is hard to meet the criteria.”

The new Secure guidelines offer enrollment to borrowers who have missed up to two mortgage payments in the previous 12 months, even ones before the adjustable rate rose. But such borrowers must have 10 percent equity in their homes, or they must persuade their loan servicer - those who bill the borrower every month, and who typically hold the mortgage - to reduce the total amount of the mortgage enough for borrowers to reach the 10 percent equity threshold.

In some cases, Burns said, lenders can take a second mortgage on the house to cover the difference. Or, she said, lenders may choose to simply write off a portion of the loan.

Burns added that under the program’s more forgiving standards, more borrowers would qualify for the program than under the previous rules.

Tom Deutsch, deputy executive director of the American Securitization Forum, a trade group that represents mortgage-servicing companies, said the new guidelines have been “appropriately relaxed.”

Borrowers with dismal financial profiles have faced difficulties when seeking to have major portions their mortgages written off in recent months, industry executives said. With the Secure program, Deutsch said, servicers would handle such situations on a case-by-case basis.

It is not clear how many additional borrowers may be helped by the new standards. Richard Tracy Jr., president of Campbell Mortgage, a brokerage firm in Connecticut that specializes in the housing agency’s loans, said many of those with poor credit who received “exploding” adjustable-rate mortgages - loans whose rates rise sharply after two or three years - probably should not have qualified for loans in the first place, he said.

“And for the few people who’ve asked us about this,” he said, “their credit had deteriorated so badly, by the time we got to them it was too late to do anything.”

NEW YORK (CNNMoney.com) — Mortgage financer Fannie Mae warned Tuesday that the tumbling home values and loan defaults that have crippled the U.S. economy are likely to worsen, after posting a far larger-than-expected first-quarter loss.

The firm said it now forecasts that home prices will sink 7% to 9% this year, 2 percentage points worse than its previous decline range forecast, a drop that could leave prices 19% off of peak levels.

Fannie also increased its reserves to cover bad loans it has backed by nearly $2 billion, and said it expects a worse outlook for credit losses in 2009 than it is seeing this year.

To preserve the capital needed to ride out the rough times ahead, Fannie Mae (FNM, Fortune 500) announced it is slashing its dividend and will try to raise $6 billion through additional stock sales.

But company officials insisted that the current market problems should provide opportunities for Fannie to grow its business and see greater revenue ahead.

“As the initial shock of home price declines dissipate and markets settle down from volatility of the last nine months, we’re seeing tremendous opportunity,” CEO Daniel Mudd said during an hour-plus conference call company executives held with investors Tuesday morning. “As the market recovers, we will be a prime beneficiary.”

While shares of Fannie plunged 6% at the open to $26.66 after the quarterly results, they recovered to be up nearly 3% in midday trading following the call.

Helping the mortgage markets
Still, Mudd warned it will be a challenging year or more ahead for Fannie. The firm and Freddie Mac (FRE, Fortune 500), the other govenment-sponsored mortgage finance firm, are being asked by Congress to do more to help pump billions of dollars into the mortgage markets and stop the decline in home sales and prices - at the same time that they are struggling with losses of their own.

To that end, Fannie announced that the Office of Federal Housing Enterprise Oversight (OFHEO), the federal regulator that monitors its activity, has relaxed some of the regulatory restraints on it.

It let Fannie out of a May 2006 consent decree, imposed at a time the firm was working to clean up problems with its accounting.

It also said that once it completes its efforts to raise the $6 billion in capital, it would loosen the excess capital it is required to keep on hand down to 15% from its current requirement of 20%. It will be able to drop that to 10% in September.

OFHEO had been requiring both Fannie and Freddie to keep 30% excess capital on hand until lowering the requirement in March.

The latest move on capital requirements could make tens of billions of additional dollars available for home loans.

While both firms are owned by shareholders, not the government, the fact that they were created by the government raises the risk of a taxpayer-funded bailout should defaults and losses increase on the trillions of dollars in mortgage loans they have guaranteed.

Fannie Mae and Freddie Mac specialize in loans made to borrowers with good credit who make large downpayments on their home purchases, rather than the riskier subprime loans that have shaken markets in the last year. Nevertheless, both have been hit by rising mortgage defaults and turmoil in the credit markets.

Worse than forecast
Fannie reported it lost $2.2 billion, or $2.57 a share, in the first quarter, compared to earnings of $961 million, or 85 cents a share, a year earlier. Analysts surveyed by earnings tracker Thomson First Call had been forecasting a loss of 81 cents a share.

The loss was larger than the most pessimistic forecast, which was for a loss of $2.40 a share.

The result marked the third straight quarter of losses at the government-sponsored mortgage financier, although it was an improvement from the $3.6 billion net loss in the fourth quarter of last year.

Fannie is struggling with rising loan losses caused by problems in the housing market. It raised its loan loss reserves to $5.2 billion from $3.4 billion three months earlier.

At the end of the quarter about 1.15% of single family homes it backs were seriously delinquent. That’s up from the 0.98% that were that far behind at the end of 2007.

It also announced that the fair value of its net assets plunged to $12.2 billion at the end of the quarter from $35.8 billion at the start of the period. It blamed market volatility and home price declines for that fall.

Its mark-to-market losses, which come about when it has to adjust the value of its holdings, rose to $4.4 billion in the quarter from $3.4 billion in the fourth quarter.

As part of its turnaround plans, Fannie announced a new refinancing option for homeowners whose loans are owned by Fannie who are up-to-date in their payments but now owe more than their home is now worth. It would allow those homeowners to refinance at up to 120% of the home’s current value.

Previously, Fannie would only purchase loans in which homeowners held considerable equity in the property.

Mudd said that despite the problems faced by the firm, it is benefiting from the current housing and credit woes, as it has been able to grow its book of business.

Net revenue rose to $3.8 billion from $3.1 billion, while its market share in new mortgage-backed securities that were backed by single-family home loans rose to 50.1% from 48.5% three months earlier.

“This is likely to be the story for the months ahead - a painful cure from the housing correction - and incredibly healthy opportunities from our resurgent role at the center of the recovery,” said Mudd in the company’s statement. “Both are happening at the same time.”

ResCap, the eighth-largest U.S. residential lender in 2007, said Monday that it will not be able to pay its debt obligations unless it comes up with an additional $600 million by the end of June.

ResCap is seeking a $3.5 billion credit line from GMAC. ResCap is also asking GMAC to retire $350 million of outstanding debt and extend an additional $150 million through an existing line of credit, the company said in an SEC filing.

On Monday, ResCap began offering as little as 80 cents on the dollar to exchange or buy back $14 billion of bonds to extend maturities until 2010 or 2015 and stave off bankruptcy.

ResCap has lost $5.3 billion in the past six quarters, Bloomberg reports.

Last week, losses at ResCap contributed to a $589 million first quarter loss at GMAC.

GMAC is owned by General Motors Corp., with a 49%, and Cerberus Capital Management LP, which holds the remaining 51%. Cerberus also owns controlling stakes in Chrysler LLC and Chrysler Financial.

GM last week said that $276 million of its $3.3 billion first-quarter loss was due to its stake in the finance company.

“This type of processing can result in some mistakes from time to time,” Steve Bailey, Countrywide’s chief executive for loan administration, said in prepared testimony to a Senate Judiciary subcommittee hearing. Bailey pledged that Countrywide will take necessary steps to reduce “avoidable errors,” and appoint a bankruptcy ombudsman.

Countrywide faces a slew of lawsuits accusing the nation’s largest mortgage lender of abusing the bankruptcy and foreclosure processes and of sloppy record-keeping. Last month, a federal bankruptcy judge said the U.S. Trustee, an arm of the Justice Department that oversees bankruptcy cases, had the authority to investigate alleged misconduct by Countrywide.

Countrywide agreed in January to be acquired by Bank of America Corp (BAC.N: Quote, Profile, Research) for $4 billion.

IRVINE, Calif., April 30 /PRNewswire-FirstCall/ — Many U.S. homeowners
continue to weather the current credit crunch and real estate market
conditions, as the number of severely delinquent mortgage accounts
increased 15 percent in one year, according to a National Score Index(R)
study conducted by Experian Consumer Direct(SM), the leading provider of
online direct-to-consumer credit reports, scores and monitoring products.

“Changes in the housing market have affected many homeowners across the
nation, with consumers in some states showing a significant increase in
severely delinquent mortgage accounts,” said Ty Taylor, group president of
Experian Interactive(SM). “Delinquent accounts can have a negative impact
on a consumer’s credit score which could lead to higher interest rates when
trying to refinance a current home loan, obtain a new loan or other lines
of credit.”

The national average credit score for those with a severely delinquent
mortgage account was 599 in February 2008, compared to 605 in February
2007. Conversely, the average credit score in February 2008 for those with
a mortgage account with no delinquencies was 750. Severely delinquent
mortgage accounts include charge-offs, short sales, foreclosures,
repossession, collections, voluntary surrender and bankruptcy.

The study also found that:
— The average mortgage balance for those with a severely delinquent
mortgage account was $131,699 in February 2008, compared to $124,465
in February 2007
— The states with the most severely delinquent mortgage accounts include
California (12.4 percent of mortgage accounts are severely
delinquent), Florida (8 percent of mortgage accounts are severely
delinquent) and Texas (6.3 percent of mortgage accounts are severely
delinquent)
— Washington D.C. had the lowest average credit score for those with a
severely delinquent mortgage account at 583

More information can be found at http://www.NationalScoreIndex.com.
This study used Experian data from February 2007 and February 2008.

About Experian’s National Score Index

Experian’s National Score Index study is based on a nationwide sampling
of 2 million consumer credit files. Using the PLUS Score(R) model, the
national average credit score for September to October 2007 was 692. In
November 2007 it was 693 and December 2007 to February 2008 it was 692.
Experian’s National Score Index Web site is updated monthly with the most
recent Experian data on U.S. consumers’ credit and is a powerful indicator
of the nation’s overall financial health. In addition to providing average
credit scores for the nation, regions, states and local areas, the National
Score Index monitors several other components of consumer credit behavior,
including average debt, credit utilization, late payments and credit
inquiries.

About Experian Consumer Direct

Experian Consumer Direct is part of Experian Interactive and a market
leader for online credit reports, scores and monitoring products delivered
directly to consumers through Web sites such as
http://www.FreeCreditReport.com and http://www.FamilySecure.com. Among its
products, the business provides consumers with instant access to their
credit report and credit score, plus credit monitoring products that
monitor all three national credit reports daily and include fraud
resolution. Experian Consumer Direct has established integrated, co-branded
partnerships with leading online financial destinations that provide
consumers with a broad range of comprehensive online financial products and
information essential to managing one’s financial life. For more
information, visit http://www.experian.com.

About Experian

Experian(R) is a global leader in providing information, analytical and
marketing services to organizations and consumers to help manage the risk
and reward of commercial and financial decisions. Combining its unique
information tools and deep understanding of individuals, markets and
economies, Experian partners with organizations around the world to
establish and strengthen customer relationships and provide their
businesses with competitive advantage. For consumers, Experian delivers
critical information that enables them to make financial and purchasing
decisions with greater control and confidence. Clients include
organizations from financial services, retail and catalog,
telecommunications, utilities, media, insurance, automotive, leisure,
e-commerce, manufacturing, property and government sectors.

Experian Group Limited is listed on the London Stock Exchange (EXPN)
and is a constituent of the FTSE 100 index. It has corporate headquarters
in Dublin, Ireland, and operational headquarters in Costa Mesa, Calif., and
Nottingham, UK. Experian employs approximately 15,500 people in 36
countries worldwide, supporting clients in more than 65 countries. Annual
sales are in excess of $3.8 billion.

LOS ANGELES (AP) — Countrywide Financial Corp. said Tuesday it lost $893 million in the first quarter, as rising loan defaults amid a deepening housing downturn forced the nation’s largest mortgage lender and servicer to sharply increase its provision for loan losses and book other credit-related charges.
The latest results marked the third consecutive quarterly loss for Countrywide, which reaped a windfall during the housing boom but has been struggling since last summer, despite predictions last fall by CEO Angelo Mozilo that his company would turn a profit in 2008.
The Calabasas, Calif.-based company, which agreed in January to sell itself to Bank of America Corp. for about $4 billion in stock, did not conduct an earnings conference call with analysts, citing the proposed sale.
The company said its loss amounted to $1.60 per share for the quarter ended March 31. A year earlier, it earned $434 million, or 72 cents per share.
Revenue plunged 72 percent to $679 million from $2.4 billion in the year-ago quarter.
Analysts polled by Thomson Financial, on average, forecast earnings of 2 cents per share on sales of $1.5 billion.
Countrywide shares rose 2 cents, less than a percent, to $5.85 Tuesday after falling as low as $5.63 earlier in the session. Its shares are down sharply from their 52-week high of $42.24.
The latest results reflected $3.05 billion in credit-related charges. That includes $1.5 billion set aside to cover losses on mortgage loans, up from $158 million in the year-ago period.
Countrywide also set aside $456 million to cover warranty claims, up from $42 million a year earlier. And it made a provision for $441 million for the impairment of certain loans types, including accelerated payoffs of home equity lines of credit.
Charge-offs, or loans written off as not being repaid, totaled $606 million during the quarter, compared with $39 million in the same quarter last year, the company said.
By the close of the quarter, the lender boosted its reserve for credit losses by $1 billion to $3.4 billion, the company said.
Countrywide said the increase in credit-related charges were driven by the expectation of worsening mortgage delinquencies, defaults and falling home values.
Countrywide borrowers increasingly missed payments during the quarter, with delinquencies in the company’s mortgage servicing portfolio nearly doubling from the same quarter last year to 9.3 percent. About 4.8 percent of the delinquent loans were 90 days or more behind in payments, the company said.
Late payments among subprime loans made to borrowers with past credit problems surged during the quarter. Nearly 39 percent of Countrywide’s subprime loans were delinquent, up from 19.6 percent a year earlier.
The widening slate of delinquent loans at Countrywide could pose a challenge for Bank of America, should its proposed takeover of Countrywide close later this year.
At a Federal Reserve public hearing in Los Angeles on Monday, Bank of America executives announced the Charlotte, N.C.-based company plans to modify at least $40 billion in problem loans from at least 265,000 borrowers over the next two years.
Countrywide had at least one bright spot in its latest results.
The lender’s average daily mortgage applications jumped 27 percent from the fourth quarter to $2.2 billion.
And its loan production unit posted pretax earnings of $232 million during the quarter, up from $171 million a year earlier.
The unit’s loan originations totaled $73 billion, compared with $117 billion in the year-ago period.
Countrywide posted a $1.2 billion loss in the third quarter last year, after which Mozilo forecast the company would return to profitability the next quarter and through 2008.
The executive’s outlook missed by a long shot, as the company posted a loss of $422 million in fourth quarter.
Shareholders saw their stake in the company dwindle as Countrywide shares lost 80 percent of their value by the end of 2007. Shares had hit a five-year peak of $45.03 in February of that year.
Meanwhile, Mozilo, who co-founded Countrywide in 1969, was paid more than $22.1 million and cashed out $121.5 million in stock options last year.
While he ended up with a sharp pay cut versus 2006 and has vowed to give up some $37 million in severance pay once the Bank of America buyout is complete, Mozilo’s stock option windfall has drawn criticism from shareholder groups and lawmakers. His stock trades also are under scrutiny by the Securities and Exchange Commission.

WASHINGTON (AP) — Sales of existing homes fell in March, the seventh drop in the past eight months, as the spring sales season got off to a rocky start.

The median price of a home was down compared with a year ago, and some economists predicted home prices could keep falling for many more months given all the troubles weighing on housing, from a severe credit crunch to a rising tide of foreclosures.

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The National Association of Realtors reported Tuesday that sales of existing single-family homes and condominiums dropped by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units.

The median price of a home sold last month was $200,700, a decline of 7.7 percent from a year ago and the seventh consecutive year-over-year price drop. It was also the second biggest decline following a record 8.4 percent drop in February. These records go back to 1999.

Patrick Newport, an economist with Global Insight, said he believed existing home sales would keep declining for another six months, with home prices falling well into 2009 given all the headwinds facing the housing market, including sinking consumer sentiment.

“All this adds up to another dismal house-selling season,” Newport said.

Many economists believe the country has already entered a recession, led by a two-year slump in housing and a related credit crunch that has led to billions of dollars in losses at major financial institutions. But President Bush disputed that view Tuesday.

“We’re not in a recession,” he told reporters during a joint news conference in New Orleans with the leaders of Canada and Mexico. “We’re in a slowdown. … there’s no question we are in a slowdown.”

Democrats used the latest weak housing report to argue that Congress must pass legislation being considered this week in a House committee that would authorize the Federal Housing Administration to take on $300 billion in new loans for as many as 1 million distressed homeowners.

The legislation is aimed at helping homeowners whose mortgages are now larger than the value of their homes negotiate into lower, more affordable mortgages rather than face the prospect of defaulting on their current mortgage.

Realtors chief economist Lawrence Yun said a survey showed 18 percent of homes up for sale in March had negative equity, meaning the mortgage was larger than the value of the home. This percentage, which represented homes that were either in foreclosure or involved in a “short sale” in which the house was being sold for less than the value of the mortgage, was up from levels around 3 percent during the 2002-2006 housing boom.

Sen. Charles Schumer, D-N.Y., said the increase in homes with a negative equity underscored the need for Congress to act quickly “to prevent this crisis from getting any worse.”

On Wall Street, stocks pulled back on Tuesday after quarterly reports from corporate giants AT&T Inc., Dupont and McDonald’s Corp. left investors unimpressed. The Dow Jones industrial average fell 104.79 points to close at 12,720.23.

Yale economist Robert Shiller, who developed one of the widely followed gauges of home prices, said in a speech Tuesday that home prices, which have already fallen about 15 percent from their peak in 2006, may fall further than the 30 percent drop experienced during the Great Depression of the 1930s, so far the biggest decline in home prices in the country.

“Basically we are in uncharted territory,” Shiller said, noting that the 85 percent rise in home prices from 1997 to 2006 after adjusting for inflation had represented the biggest housing boom in U.S. history, so the fall in prices could be just as historic.

The median sales price of $200,700 in March was up from a February median of $195,600. Analysts said this was statistically meaningless because the monthly price changes are not adjusted for seasonal variations and prices always rise in March at the start of the spring sales season.

The March sales decline, which was in line with expectations, followed a 2.9 percent February sales increase, which had been the first advance after six straight sales declines. Sales were down 19.3 percent compared with March 2007.

Mark Zandi, chief economist at Moody’s Economy.com, said he believed home sales could hit bottom this spring, but he said the fall in prices was only half complete, with further declines needed to work off still large levels of unsold homes.

“It will be a long and painful end to the housing downturn because it will take a lot more price cutting to work off all of the inventory that is out there,” he said.

The inventory of unsold homes rose 1 percent in March to 4.06 million homes, representing a 9.9 month supply at the current sales pace, as rising foreclosures dump more homes on the market.

For March, sales were down 6.5 percent in the Midwest and 3.5 percent in the South, but they increased by 2.2 percent in both the Northeast and the West.

While the Federal Reserve is expected to cut interest rates further at its meeting next week in an effort to jump-start the economy, Yun cautioned that further rate cuts might actually drive mortgage rates higher as financial markets begin to worry more about inflation.

CLEVELAND (AP) — National City Corp., a largely Midwestern bank reeling from steep mortgage losses, said Monday it had secured a $7 billion cash infusion from equity investors but slashed its dividend and reported a $171 million loss for the first quarter. Its shares sank almost 28 percent by early afternoon.
The nation’s 10th-largest bank said it has secured $985 million from New York-based Corsair Capital LLC, which has experience with troubled financial institutions internationally. The remaining balance will come from other investors, including current institutional shareholders.
National City is also cutting its dividend to 1 cent per share from 21 cents per share to help strengthen its capital position.
Peter Raskind, CEO of National City, told analysts in a conference call that the capital infusion will help stabilize National City. “It reassures customers we are here for the long haul,” he said.
On April 1, the company hired New York investment bank Goldman Sachs to look into strategic alternatives. Analysts thought one option was a sale, and several banks were viewed a potential buyers.
“We found ourselves on the defense against rumors and market speculation,” Raskind said in Monday’s conference call.
It is raising money amid deterioration in the credit and mortgage markets that has plagued banks since the middle of 2007 and cut into capital positions.
The Cleveland-based bank reported earlier this year that it lost $333 million, or 53 cents per share, in the fourth quarter of 2007.
On Monday, it said it lost 27 cents per share in the January-March period. A year earlier, it earned $319 million, or 50 cents per share, in the quarter.
Its shares fell $2.33 to $6.00 in afternoon trading after sinking to a 52-week low of $5.92 earlier in the session. Its shares are about 85 percent below its high for the past year.
National City will issue 126.2 million shares of common stock at a purchase price of $5 per share. It also will issue 63,690 shares of preferred stock that will automatically convert into 20,000 shares of the company’s common stock.
Corsair Capital and certain other participating investors will receive warrants with an exercise price of 115 percent of the company’s average closing price for the five-trading-day period beginning Monday, with a cap of $8.50 per share.
The moves allow the National City board to remain in control. Corsair Capital Vice Chairman Richard Thornburgh, who will represent the company on National City’s board, said the bank has strong core services.
National City, Ohio’s largest bank holding company with assets of $150 million, 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 cut its dividend 49 percent and 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.
Raskind said in January that National City remained fundamentally strong and well capitalized and expected to meet its challenges.
On Monday, the company revised future loss expectations and said it significantly increased reserves, in particular liquidating portfolios of nonprime mortgage and broker-sourced home equity loans.
As of March 31, the allowance for loan losses was $2.6 billion, or 2.2 percent of portfolio loans, compared to $1.8 billion, or 1.5 percent of portfolio loans, at the end of last year.
Raskind said cutting the dividend and raising its reserves were prudent in anticipation of continued difficulty with home loans.
The mortgage losses in the first quarter outweighed a gain of about $500 million from Visa Inc.’s initial public offering and solid financial performance in retail banking, commercial banking and wealth management businesses.
Thomson Financial analysts has expected a profit of 31 cents per share.
National City operates about 1,400 bank branches spread mostly across Ohio, Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, Pennsylvania and Wisconsin. It’s Florida presence, the result of recent acquisitions, is part of a strategy to enter a growth market.