National City is on probation

The bad news in the financial sector keeps coming. Today, the news is about National City, a Cleveland-based regional bank in the US. The Wall Street Journal reports that the Office of the Comptroller of the Currency (OCC) has put Nat City on probation.

“National City Corp.’s banking unit, which has been buffeted by rising bad loans, has recently entered into a “memorandum of understanding” with federal regulators, effectively putting the bank on probation.

The confidential agreement with the Office of the Comptroller of the Currency was entered into over the past month or so. It illustrates the growing regulatory pressure some financial institutions are under as they struggle to deal with fallout from the credit-market turmoil.”
–WSJ, 06 June 2008

Apparently, they were at risk of failing. No wonder they raised all that money and were looking to be bought out by Fifth Third.

As you know, I think the regionals are going to be hammered these next few quarters by souring commercial real estate (CRE) and construction loans. They have much bigger exposure here since they were pushed aside in the residential mortgage lending deals by aggressive national operators. At least one of these institutions will go bankrupt.

If you are wondering how the market rallied to close way up yesterday after the MBIA and Ambac news, well you’re not alone.

Today, it’s Nat City and the bad employment report. Stay tuned.

Sources
National City Is Under U.S. Scrutiny, WSJ, 06 June 2008
Report: National City On ‘Probation’ With Banking Regulators, Housing Wire, 06 June 2008
May see bigger U.S. bank failures in future: FDIC, Reuters, 05 Jun 2008

See also: Other posts under the label ‘regional banks.’