National City Axes Subprime Unit

Up to 500 jobs at risk at PCFS Mortgage

August 24, 2004

By PATRICK CROWLEY

The closure comes at a time when the subprime sector is thriving — with many major players reporting record production even as conforming production has plummeted.

“While many bids were received, none reached the terms of acceptance for us to sell the entire business,” bank spokesman Chris Kemper said in published reports.

National City is in the process of closing a $2.1 billion acquisition of Provident Financial Group, a banking and financial services company controlled by the family of Cincinnati Reds majority owner Carl Lindner.

National City has previously said 400 to 800 jobs would be cut because of the merger. The banking company has not said how many jobs will be lost through the sale of the subprime business.

But an employee E-mailed MortgageDaily.com and indicated workers were told 250 to 300 workers in Cincinnati would lose their jobs. The office will close on Oct. 19.

Another 200 employees at an Atlanta service center were also likely to be laid off.

“National City Bank tried unsuccessfully to sell the PCFS brand to other companies,” the employee said. “National City has provided a generous severance of at least three months pay to several associated.”

The bank said severance agreements may stretch up to six months and that workers who lost jobs will be given priority for any openings at National City.

Provident has actually been trying to sell the unit for several weeks.

Provident said in a statement that as of the end of the first quarter PCFS held a servicing portfolio of $11.1 billion in loans originated and serviced by others, $1.1 billion in loans originated and serviced by Provident and approximately $260 million in loans held for sale.

The company was unable to sell the two later blocks of loans but is continuing to market the $11.1 billion in loans.

A drop in mortgage lending is hurting National City’s bottom line.

The company announced in July that lower mortgage lending earnings led to an 11 percent drop in profits during the second quarter.

“We expected the exceptionally high earnings from National City Mortgage to decline sharply with the onset of higher interest rates, which is exactly what happened,” National City chairman and CEO David Daberko said in a statement.

For the quarter, National City reported funding nearly $23 billion and earning $519 million, or 83 cents a share, compared with $586 million, or 94 cents a share, in the second quarter of 2003.

In a conference call with analysts earlier this year Daberko said there would be some “head count reduction” among mortgage jobs because of the merger.

But executives on that same call said the any mortgage-related job cuts will be in administrative functions.

Provident, however, had been looking to sell the its subprime unit.

In June the company said it was “reviewing strategic alternatives including, but not limited to, the potential sale of its subprime residential mortgage servicing platform and mortgage servicing rights, residual interests in subprime mortgage loan securitizations and the subprime wholesale and retail origination platforms.”

“No assurance can be made that any transaction will be consummated on terms acceptable to Provident,” the bank said, a scenario that has apparently played out.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: pcrowley@enquirer.com