National City approves $7B cash infusion deal

National City Corp.'s board has approved a $7 billion capital infusion that includes Corsair Capital LLC and a group of shareholders, the bank said Monday.

Corsair, a New York private equity firm, will also take a 9.9 percent ownership share in the Cleveland-based bank. The firm will contribute $985 million in equity, and also receive a seat on National City's board, to which it plans to appoint its vice chairman, Richard Thornburgh.

The balance of the funds, more than $6 billion, will be contributed by shareholders, including several large institutional investors, National City said in a news release. The bank will issue 126.2 million shares of common stock, at a purchase price of $5 per share, as well as 63,690 shares of preferred stock, at $100,000 per share. Each of those shares will convert into 20,000 shares of common stock, subject to approvals and adjustments.

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Corsair and the other investors will also receive five-year warrants with an exercise price of 115 percent of the bank's average closing price for the five-day trading period beginning Monday, with a cap of $8.50 per share.

The bank will call a special shareholders meeting to approve the common stock issue, the conversion of preferred stock into common stock, and the warrants.

Shares of National City (NYSE: NCC) fell 26 percent, or $2.18 to $6.15 in Monday morning trading.

National City has suffered through the subprime mortgage crisis, seeing its stock fall below $10 a share, after trading as high as $38.32 in the past year. The bank also cut its dividend 49 percent to conserve capital, and will cut it again - to 1 cent per share from 21 cents per share.

The bank said the capital infusion will raise its Tier 1 risk-based capital ratio to 11.4 percent pro forma from 6.65 percent as of March 31. The ratio had fallen close to banking regulators' minimum requirement.

National City is the Pittsburgh's region second-largest bank, with local deposits of about $10.6 billion and 152 branches in the area.