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Dear Mr. Berko:

Dear L.P.:

National City Corp. (NCC-$5.08) is a bank holding company with 1,400 offices and 33,000 employees and is home-ported in Cleveland.

NCC is what I call a “super-regional,” and it was ignominiously slammed to its knees by the mortgage and real estate crisis. The bank will lose about $2.4 billion this year but quickly raised $7 billion from a stock offering to put some spine in its balance sheet. NCC’s management got much too cozy with the likes of Citigroup, Merrill Lynch and Washington Mutual. As a result, shares got whacked from $39 last year to $5.08 today, and its annual dividend of $1.60 per share was recently axed to a niggardly penny a quarter.

With $150 billion in assets and $120 billion in loans, this bank does everything Citigroup does but on a much smaller scale, including public financing, investment banking, correspondent banking, treasury management, stock transfer, international services, structured financing, syndicated lending, equity and mezzanine capital, derivatives, asset management services, commercial leasing, commercial and home mortgages, investment real estate lending, trust services, retirement planning and the whole enchilada. But last year the floor began to fall out from under National City, and many Clevelanders cried as NCC’s market cap plummeted from $15 billion to $3.5 billion. Holy cow and mackerel!

Well, NCC’s early and timely May stock offering of 127 million shares raised its capital ratios way above the high end of its target range. NCC’s real estate loan losses seem to be leveling off, and the Street expects a lower than anticipated loss of 20 cents per share for 2008. The outlook for 2009 reckons a profit of 40 cents to 43 cents a share, but considering the tumult and turmoil the economy is still being dragged through, those earnings projections are at best very rosy guesses.

However, NCC’s broad network plus its large deposit base could be attractive assets in a consolidating marketplace where we may expect a series of mergers to strengthen the banking industry. NCC could be a “mergerer” or a “mergeree.”

The shares are certainly not timely; the banking industry is an unfavorable sector that may take at least a half-dozen years to regain its investment attraction. However, the best time to buy a solid company is when it’s beaten down, kicked around and exsanguine. That description aptly becomes National City. So recently Deutsche Bank and Punk, Ziegel & Co. ranked NCC as a “buy.” The following day BMO Capital and Sanford Bernstein ranked NCC “outperform,” a secret industry code word for “buy.” I agree; I think NCC could levitate to the low $20s in the next five or six years.

But because you’re retired, I wouldn’t just buy the stock, I’d also consider the National City Capital Trust IV 8 percent preferred stock (NCC-C-$16), which has a 12.5 percent current return. This NCC-C pays in March, June, September and December, is callable at $25 and rated A3/BBB-plus by Moody’s and S&P. I’d suggest investing in 350 shares of the common (about $1,750) plus 100 shares of NCC-C. This creates a synthetic convertible preferred, and while you wait five or six years for a potentially attractive recovery, you’ll also be getting a 6.4 percent current return on a $3,350 investment.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service