National City gets approval to raise cash

While all eyes were focused on Lehman Brothers this weekend, many other players were making their moves to shore up their own balance sheets in order to avoid the critical situation which felled Lehman. Merrill Lynch is the obvious example of shrewd moves in the wake of the Lehman fallout.

However, National City Corp (NCC), based in Cleveland, OH, has made its move as well. It has received shareholder approval to raise as much as $7 billion in new capital.

National City Corp, a U.S. Midwest regional bank battered by mortgage losses, has won stockholder approval to authorize new shares to allow for a $7 billion capital infusion, the bank said on Monday.

The Cleveland-based bank said shareholders authorized an increase in the maximum shares outstanding to 5 billion from 1.4 billion. Shareholders also approved the conversion of some convertible debt into common stock, and the exercise of some warrants. These actions were related to a capital raising plan announced in April, in which National City raised dilutive capital from Corsair Capital LLC and other investors.

The new capital gives National City “the necessary flexibility to address current market challenges,” Chief Executive Peter Raskind said. He added that the bank has no exposure to Lehman Brothers Holdings Inc, the Wall Street bank that filed for bankruptcy protection, and has routine derivatives contacts with Lehman’s broker-dealer unit. –Reuters

The moves by National City have to be a relief for shareholders as NCC was one of the regional banks most under scrutiny for its exposure to additional real estate related losses. However, one must not this authorization is only the first step; the next step is actually getting the money.

Although the move, if completed, would mean serious dilution for National City, it would also be a relief to know that bankruptcy is less likely in the wake of the largest Chapter 11 filing in U.S. history.

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Originally published at Credit Writedowns and reproduced here with the author’s permission.