Stocks: National City Seen Missing Profit Projections

National City Corp.'s earnings may fall short of expectations, one Wall Street analyst warned Thursday.

Edward Najarian of Wheat First Union reduced his investment rating on National City to "hold" from "outperform." He said the Cleveland company will probably miss banking industry analysts' consensus earnings estimates of $4.59 per share for 1999 and $5.10 for 2000.

And the bank will not make the expected $1.07 per share on an operating basis for this quarter, Mr. Najarian said.

National City shares closed Thursday at $70.8125, off $1.75.

National City continued to experience net interest margin pressure in the first quarter, albeit at a slower pace than during the past few quarters, the analyst said. As a result, first-quarter net interest income will slip "despite solid loan growth and balance sheet growth," he said.

Meanwhile, fee income will decline to about $555 million, from $576 million, excluding investment securities gains, Mr. Najarian said.

"We do not find the current valuation of the stock particularly attractive relative to other superregional banks," the analyst said.

He told clients that Fleet Financial Group of Boston "is a better investment choice over the next two years, based on current valuation, business mix, and fundamental operating trends."

Fleet shares on Thursday were up 18.75 cents, to $42.6875.

"We believe Fleet has a better and more diversified mix of fee businesses and will generate much stronger fee revenue growth" than National City in 1999, Mr. Najarian said.

"Based on internal growth and cash acquisitions, we are projecting that Fleet will produce 17% fee income growth in 1999," Mr. Najarian said. At Fleet, fee income will amount to 46.4% of net revenues this year, versus 42.1% for National City.

And while Fleet's net chargeoff ratio is higher than National City's, its loss-reserve coverage is also considerably higher, Mr. Najarian said. "Furthermore, management at National City is forecasting that the company's net chargeoff ratio will rise in 1999."

The assessment came as banks slipped lower Thursday on rate hike fears, after a steep dive on Wednesday. Bank stocks recovered somewhat late in the afternoon, with some shares managing gains.

The Standard & Poor's bank index added 0.65%, while the Dow Jones industrial average dropped 0.35%. The Nasdaq bank index gained 0.15%, and the S&P 500 stock index was down 0.67%.

BankAmerica was up 68.75 cents, to $64.625; Chase Manhattan Corp. 68.75 cents, to $79.50; and J.P. Morgan & Co. 93.75 cents, to $112.5625.

"Concerns about rising interest rates are causing selling pressure," said Fred Cummings, a banking analyst at McDonald Investments in Cleveland.

"Yields (on the 30-year government bond) have risen from 5.50% to 5.60% since yesterday, suggesting that price-to-earnings ratios may come down," Mr. Cummings said. "That is what is causing weakness, particularly in bank stocks."

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