DBRS Confirms National City Corporation at A (high); Changes Trend to Negative

DBRS has today confirmed all of the ratings of National City Corporation (National City or the Company) and its rated subsidiaries as listed, including the Company’s Issuer & Senior Debt at A (high) and Short-Term Instruments at R-1 (middle). At the same time, DBRS has changed all trends to Negative from Stable.

The change in trend to Negative from Stable reflects deterioration in the Company’s profitability metrics and operating leverage over the past few years. The rating action follows a detailed review of the Company’s operating results and financial fundamentals. The Negative trend also reflects DBRS’s view that National City’s strong and well-positioned franchise may not be able to restore sustainable revenue growth and positive operating leverage in the intermediate future in light of the difficult environment in its principal markets and above-peer-group average funding costs.

National City’s recent operating performance has been further weakened by deterioration in the U.S. mortgage and housing markets. Specifically, DBRS believes that the Company’s two runoff portfolios – $6.6 billion in non-prime (but partially insured) loans and $10.7 billion in predominantly prime home equity loans – may contain material additional loss content while these assets are being managed down. Moreover, the $15.5 billion in largely prime retail home equity loans may also experience higher-than-expected credit costs. The Company has been diligently working towards reducing, realigning and the appropriate scaling of its mortgage business to properly position it for the return of more rational market conditions in the future. Another significant headwind facing National City is the difficulty in growing deposits in its legacy markets.

The ratings confirmation reflects National City’s strong regional banking franchise and revised strategy that has produced a more focused franchise in the current difficult environment. Additionally, the Company has improved its marketing capabilities and sales culture resulting in some deposit share gains primarily in its newer and higher-growth markets. National City’s well-positioned deposit franchise, with a greater than 20% market share in 48% of the cities where it has a presence, is well above average for DBRS’s rated bank universe. While the deposit franchise is entrenched and defensible, it has not produced meaningful growth in its legacy markets over the past few years. Moreover, the composition of deposits and the difficulty of organically growing core deposits to match loan growth have elevated funding costs for National City. The Company has, however, gained traction in growing consumer households and increasing customer wallet share.

Although still within expectations, increased pressure on asset quality has resulted from the prevailing negative credit cycle. Furthermore, DBRS notes weakening capital levels while the liquidity profile remains adequate.

DBRS will continue to observe National City’s operating performance and financial profile during what is likely to remain a challenging environment throughout 2008. The return of core profitability and operating leverage to peer-appropriate levels would support the restoration of a stable trend. Evidence of further weakening in National City’s core profitability metrics and franchise, including declining market shares and/or large losses relative to earnings could result in negative rating actions.

National City Corporation, a financial holding company headquartered in Cleveland, Ohio, reported total assets of $154 billion at September 30, 2007.

Note:
All figures are in U.S. dollars unless otherwise noted.