National City Bank in trouble

National City Bonds Show Defaults KeyCorp Can't Deny (August 20 – Bloomberg)


Never have regional banks been so disrespected by bondholders.

National City Corp. Chief Executive Officer Peter Raskind says Ohio's biggest lender is the "best capitalized of all major U.S. banks" after raising $7 billion this year, yet its bonds show it's at risk of default. Cleveland-based National City's bonds have plummeted as much as 17 cents on the dollar since June and yield more than 10 percentage points above Treasuries, similar to Ford Motor Co. debt. KeyCorp, Comerica Inc. and Fifth Third Bancorp have also tumbled, falling as much as 14 cents.

The declines underscore growing speculation among investors that the more than $500 billion of credit losses and asset writedowns sparked by the collapse of the housing market are nowhere near ending, and there is little Federal Reserve Chairman Ben S. Bernanke or Treasury Secretary Henry Paulson can do.

"I've been at National City for 30 years and a month and for 29 of those we've seen nothing like it," Thomas Richlovsky, National City's 57-year-old treasurer, said in a telephone interview. "In past cycles certainly lending, or credit, has gotten more difficult. The cost of credit would go up. In this particular phenomenon of the last year it's not like you can borrow money and the price went up. No, the market's closed."

The current crisis is a credit crisis. Period. I don’t really care if the stock market is trying to signal a bottom, or help keep confidence up; the real problem is that we have a debt-based money system in which the engines of debt have stalled out. Bernanke and Paulson are furiously pulling on the starter cord, but so far they’ve only been rewarded with a few sputters. Also, if you have any money at National City, GET IT OUT. It’s now very high on the list of “banks least likely to succeed.”

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