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Fitch: Minimal Relief from Asset Quality, Earnings Pressure Prompts National City Downgrade

NEW YORK-(Business Wire)-October 3, 2008 - National City Corporation (NCC) has been battling asset quality issues in its mortgage and home equity portfolios for over a year. Fitch notes that during that time the company raised $7.0 billion in new equity capital and improved its liquidity profile and processes. The near future is unlikely to offer the company any relief and may very well result in additional asset quality problems as the economy weakens, says Fitch Ratings. With market pressures making access to new forms of funding quite difficult, NCC will need continued focus on maintaining its strong liquidity. The recent passage of the Emergency Economic Stabilization Act could potentially provide the company with some relief.

Fitch has downgraded NCC and its subsidiary, National City Bank's (NCB's), long and short-term Issuer Default Ratings (IDR). NCC long-term IDR has been lowered to 'BBB+' from 'A' while NCB's long-term IDR has been lowered one-notch to 'A-' from 'A'. The bank and the holding company's Individual rating has been lowered to 'C' from 'B' and the short-term IDR was lowered to 'F2' from 'F1'. Additionally, Fitch has placed all ratings on Negative Rating Watch. A complete list of all ratings is provided at the end of this release.

NCC's liquidating portfolio, comprised largely of mortgage and home equity loans, remains its most problematic and represents approximately 18% of total loans. While ultimately Fitch views this portfolio as manageable if worked out over a period of years, the portfolio has caused a sizeable uptick in NPAs and NCOs. The now more evident slow-down in the U.S. economy may add to problem assets and would clearly hinder the company's return to profitability and earnings are expected to remain pressured. The company has a relatively higher level of problem assets for a company in the 'A-' rating category. The Negative Watch reflects concern that further deterioration in the overall economy could result in additional asset quality problems.

Fitch notes that the parent has minimal near term maturities and several years worth of liquidity to meet all obligations without consideration of any potential dividends from its banks. Since earlier this year, the company began stockpiling both liquidity and capital, which now provides the firm with a meaningful cushion to withstand further write-downs of problem assets, even to liquidation values.

Fitch has downgraded the following ratings:

National City Corporation

—Long-term IDR downgraded to 'BBB+' from 'A';

—Senior debt downgraded to 'BBB+' from 'A';

—Subordinated debt downgraded to 'BBB' from 'A-';

— Preferred stock downgraded to 'BBB-' from 'A-';

—Short-term IDR downgraded to 'F2' from 'F1';

—Individual to downgraded 'C' from 'B';

—Support remains at '5';

—Support Floor remains at 'NF';

—Rating Watch Negative.

National City Bank (Cleveland)

—Long-term IDR downgraded to 'A-' from 'A';

—Long-term deposits downgraded to 'A' from 'A+';

—Senior Debt downgraded to 'A-' from 'A';

—Subordinated debt downgraded to 'BBB+' from 'A-';

—Short-term deposits 'F1'

—Short-term IDR downgraded to 'F2' from 'F1';

—Individual downgraded to 'C' from 'B';

—Support remains at '4';

—Support floor remains at 'B'.

—Rating Watch Negative.

National City Credit Corporation

—Short-term downgraded to 'F2' from 'F1'

—Commercial paper downgraded to 'F2' from 'F1'

—Support remains at '5';

National City Capital Trust II

National City Capital Trust III

National City Capital Trust IV

National City Preferred Capital Trust I

Fort Wayne Capital Trust I

PFGI Capital Corporation

—Subordinated preferred stock downgraded to 'BBB' from 'A-'.

Fitch has downgraded the debt issues of the following inactive entities:

National City Bank of Indiana

National City Bank of Kentucky

—Long-term deposits downgraded to 'A' from 'A+';

—Senior Debt downgraded to 'A-' from 'A';

—Subordinated debt downgraded to 'BBB+' from 'A-'.

National City Bank of Pennsylvania

—Long-term deposits downgraded to 'A' from 'A+';

—Subordinated debt downgraded to 'BBB+' from 'A-'.

National City Bank (Columbus)

—Subordinated Debt downgraded to 'BBB+' from 'A-'.

The Provident Bank

—Long-term deposits downgraded to 'A' from 'A+'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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