National City to Raise $7 Billion in New Capital

The National City Corporation, the nation’s tenth-largest bank, said on Monday that it plans to raise $7 billion from a group of investors as it seeks to shore up its balance sheet against continued trouble in the mortgage market. But the plan also involves slashing the bank’s dividend and a big dilution of current shareholders.

The bank, based in Cleveland, also reported a loss of $171 million for its first quarter, amounting to 27 cents a share. During the same time last year, it reported $319 million in profit, or 50 cents a share.

Corsair Capital, a private equity firm specializing in distressed financial companies, led the consortium with a $985 million investment. Others include some of the regional bank’s largest institutional investors. Corsair’s vice chairman, Richard E. Thornburgh, will join National City’s board of directors.

Through the investment, National City will boost its tier-1 capital ratio, a measure of capital adquacy, to 11.4 percent from 6.65 percent on March 31.

Shares in National City plummeted 19 percent to $6.74 in early morning trading Monday.

Peter E. Raskind, National City’s chairman and chief executive, said in a statement: “This strategic raising of equity capital provides National City with the financial flexibility to continue investing in and growing our core businesses, which are delivering solid results, while addressing the asset quality challenges posed by the disruptions in the credit and housing markets,