National City Corporation (NYSE: NCC) announced Tuesday morning that it is reviewing a range of "strategic alternatives", which is usually street-code for considering a sale of the company. The company offered no additional details, but there has been some speculation that advanced negotiations are already underway. However, large losses sustained in its mortgage banking business may prove to be a sticking point.
Wells Fargo (NYSE: WFC) and Key Corporation are the two companies reportedly in talks with the troubled mortgage banker. However, sources close to the situation say that a deal is unlikely until the buyers become more comfortable with the bank's residential real estate portfolio. The big problem is finding a buyer willing to pay a fair price without months of due diligence.
National City is also looking at other alternatives, including a sale of its asset management business and/or a sale of its stake in Visa. The company already sold a third of its stake in Visa for $450 million, which means the remainder could be worth another $900 million or more. Meanwhile, its asset management business is still doing well and would likely fetch a decent multiple.
National City is under pressure to come up with some cash after experiencing some heavy losses from their residential mortgage portfolio. Analysts have warned that its remaining $6 billion in risky loans may cause a problem if the company does not either raise additional capital or sell the company. The struggling geographic markets that it operates in will also mean a prolonged struggle if nothing is done.
The troubled mortgage banker already sold its subprime origination platform, First Franklin Mortgage, to investment bank Merrill Lynch at the beginning of the year for $1.3 billion. This proved to be a move in the right direction as Merrill Lynch was forced to close up shop just months after making the huge purchase. However, $6 billion in loans were left behind and are still held by National City.
In the end, National City saw losses of over $300 million last quarter and may see the same this quarter if changes aren't made. Many analysts are convinced that the company needs to take major action to raise some cash or it could face a prolonged downward spiral. Whether or not the company can successfully raise cash or sell itself remains to be seen, but this is definitely a story worth following over the next few months.
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