There are a few hallmarks that define any bubble. One is the popular notion that making money is so easy. Another is the belief that anyone can do it. Yet another is the sense that even if things don't quite work out, there's little or no downside.
Yet when boom turns to bust, one outcome is always the same: fools who should have known better, saddled with large losses, desperately trying to pick up the pieces. In "How Safe Bank Tried Subprime And Got Singed," the Wall Street Journal reports on the fallout afflicting one institution that apparently saw only upside during the easy money days of recent years.
National City, in Move To Bolster Its Capital, Offers Cautionary Tale
Regional banks -- long known for their consistent if unspectacular growth in plain-vanilla loans and deposits -- are finding out the hard way that they should have stuck to their strengths during the housing bubble.
National City Corp., a Cleveland bank that barreled into originating subprime mortgages and the go-go Florida real-estate market, said it would slash its common-stock dividend by 49% and has hired an investment bank to advise it on ways to bolster capital levels now being sapped by souring loans.
The turnabout of fortune for the 15th-largest U.S. bank by stock-market value, with a reputation for Midwestern common sense, is a sign that the credit crisis is spreading deeper among traditional banks. National City had hoped that subprime loans and a larger geographic base would help it overcome slow growth closer to home, but the company now concedes that it made mistakes.
"We think the environment is uncertain enough that (the dividend cut and capital infusion are) the right thing to do," Peter E. Raskind, National City's chairman and chief executive officer, said in an interview. He became CEO in July and chairman last month, after running the bank's retail-banking and mortgage businesses.
Some of National City's nearest and fiercest rivals also made big bets across the U.S. -- and now are facing trouble, too. Among them: Fifth Third Bancorp of Cincinnati and KeyCorp of Cleveland, which pushed hard into once-booming Southern states but now are seeing their balance sheets clogged with bad residential and commercial real-estate loans. Such aggressive geographic expansions have "come back to bite all of them because of the downturn in real estate," said Robert J. Graves, co-head of the banking practice at law firm Jones Day.
National City's capitulation on its dividend is the latest sign of how hungry some of the best-known and most-established names in the U.S. banking industry are for capital infusions, from either investors or the sale of assets.
