National City Bank's 10 Biggest Mistakes

Once highly-regarded in the banking industry, National City Bank became a national joke in a matter of months. The Cleveland-based institution is to be taken over by PNC Financial Group which is taking advantage of changes in federal tax law to make it easier to handle the acquisition.

As it turns out, Cleveland Plain Dealer blogger Teresa Dixon came out with a list of 10 things National City did wrong last April, a full six months before National City’s demise. The list seems prescient today and serves as a template for how banks could have — and should have — avoided trouble:

1. Don’t dive into mortgages so deeply. National City Bank went from a 5 percent to 50 percent exposure to mortgages in a few years.
2. Watch your subidiaries more carefully. National City should have sold its subprime subsidiary, First Franklin, much earlier than 2006.
3. Dump your subprime portfolio while the getting is good.
4. Avoid mortgages sold through third-party brokers.
5. Don’t buy so much of your own stock just before you announce disappointing earnings.
6. Don’t plunge into highly-competitive and soon-to-dip markets such as Florida.
7. Don’t raise your dividend when short of income.
8. Don’t allow “piggyback” mortgages that allow people to buy homes with little or no down payment because there’s no equity involved.
9. Watch your efficiency ratios. These show how much a bank spends to bring in a dollar of revenue. The best banks operate in the 50 to 55 cent range. National City ran its ratio all the way up to 92 cents to make a dollar.
10. Don’t put all your eggs in the “Best in Class” paradigm. National City launched a program to upgrade and restructure its non-mortgage businesses through consolidation and cuts. It ignored some fundamentals along the way.

It’s too bad that National City’s executives didn’t follow the list, but it was probably too late anyway.