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National City Likely on the Market

National City Corp. here is exploring "strategic alternatives," a term which has become a corporate euphemism for the company is up for sale. In its statement, NCC said it would make no further statements until its board has approved a specific course of action.

It has hired Goldman Sachs as the advisor for the review. "The review has no impact on National City's day-to-day operations. We remain focused on providing our customers with the high-quality products and personal service that have long differentiated us in the marketplace," said chairman, president and chief executive Peter E. Raskind.

Based on this announcement, both Morgan Stanley and Bear Stearns have upgraded NCC.

"We are upgrading NCC to equal weight on valuation and reduced risk given increased prospects the company will be acquired. We recommend closing out short positions, and reiterate our $10 price target," said Morgan Stanley analysts Betsy Graseck and Justin Kwong.

The analysts value NCC as an acquisition candidate at $12 per share. "In the event that NCC were to remain independent, we would expect the bank to cut its dividend to zero for the rest of 2008 and for 2009, as it looks to preserve its capital ratios in the face of the recessionary environment and rising borrowing costs."

Even though at the end of 2006, NCC sold the First Franklin subprime originations and servicing platforms to Merrill Lynch, the company has still suffered in the current credit crisis.

NCC operates more than 410 retail mortgage banking offices nationwide in addition to its retail bank branches, its filing said.

According to its 10-K filing, at the end of last year, NCC had $1 billion in loans that were not eligible for sale to Fannie Mae or Freddie Mac.

"Declining real estate prices and higher interest rates have caused higher delinquencies and losses on certain mortgage loans, particularly second-lien mortgages and home-equity lines of credit and especially those that have been sourced from brokers that are outside National City's banking footprint. These trends could continue. These conditions have resulted in losses, writedowns and impairment charges in the mortgage business, especially in the fourth quarter of 2007," the 10-K said.

The mortgage banking business at NCC posted a net loss of $541 million for 2007, compared with net income of $58 million in 2006 and $419 million in 2005.

NCC had a 2006 pretax gain of $984 million on the First Franklin sale. In addition, First Franklin contributed $264 million and $283 million to NCC's non-interest income in 2006 and 2005, respectively.

Other than the mortgage banking business, NCC said its other lines of business, namely commercial banking, retail banking and wealth management, performed well in 2007.

NCC finished 2007 as the nation's 10th largest servicer, with a portfolio of $187.5 billion, and the 12th largest originator with volume of $46.4 billion for the year, according to the MSN Quarterly Data Report.

NATIONAL CITY CORP.

Residential servicing at 12-31-07 $187,512

No. of units serviced 1,158,041

Servicing rank 10th

2007 residential fundings $46,350

2007 origination rank 12

Parent National City Corp.

Charter of parent commercial bank

Source: MSN/Quarterly Data Report. Questions? E-mail Paul.MuoloSourceMedia.com (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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