Bankers doing business in Michigan and the surrounding states could suffer spikes in commercial and consumer loan defaults if the government does not rescue Detroit's Big Three automakers, observers said.

Executives from General Motors Corp., Ford Motor Co., and Chrysler LLC appeared before Congress this week to request money from the federal government's $700 billion bailout fund to avoid bankruptcy and massive layoffs.

Kevin T. Kabat, the chief executive of Cincinnati's Fifth Third Bancorp, said he is watching the debate closely.

"Our exposures to the auto industry are way down compared to a half a dozen years ago, and it is mixed between Detroit and the new domestics in the southern end of our footprint," he said in an interview Wednesday. Nevertheless, "we are very concerned because of the ripple effect." The failure of a major automaker would have wide repercussions, Mr. Kabat said. "The ripple effect isn't just commercial. It also involves consumers" who work for the companies.

Fifth Third's auto-related portfolio is about $700 million, or less than 1% of total loans. And analysts said other banking companies in the region — KeyCorp, Comerica Inc., and Huntington Bancshares Inc. — have been working to reduce direct exposure to the auto industry.

However, Brett Rabatin, a senior bank analyst with First Horizon National Corp.'s FTN Midwest Research Securities Corp., said banking companies with significant operations in the Midwest would take hits in multiple portfolios if the automakers were to collapse. For example, "small businesses just don't have the resources to withstand a prolonged downturn."

Even Comerica, which moved its headquarters from Detroit to Dallas last year, would feel an impact, because it still originates more than a third of its loans in the Midwest, Mr. Rabatin said.

Comerica has said it is looking to expand the volume of loans originated in Texas, California, and other parts of the Southwest, a region that accounts for a third of its originations.

Beth Acton, Comerica's chief financial officer, said in an interview last month that it plans to make fewer loans in the Midwest, partly because of a decline in demand and partly because Comerica already has significant market share in the region. Ms. Acton also said the company will continue to close branches in Michigan, where it has about 55% of its 424 branches.

Matthew Schultheis, an analyst at Boenning & Scattergood Inc., said the problems in the U.S. auto industry have forced observers to take a closer look at Pittsburgh-based PNC Financial Services Group Inc.'s deal for National City Corp, which is based in Cleveland. PNC's loan-loss provision would rise to about $2.5 billion next year, from $1 billion this year, because of the assumption of Nat City's known bad assets, Mr. Schultheis said.

If one or more of the automakers were to fail, that estimate would only rise, he said.

"People finally look at the map of Nat City and say, 'Oh, my God, they are in Ohio and Michigan,' " Mr. Schultheis said. "That's one of the glaring risks of this acquisition, and no doubt" Nat City's exposure to the potential fallout from an automaker failure "is less than ideal."

Calls to PNC were not returned.

Mr. Kabat said that no matter what happens this week, the government would have to address whether GM, Ford, and Chrysler require a radical restructuring to survive. "No one would doubt the significance of the industry in this country, but we need to talk about the health of the auto industry in this country afterwards," he said. "What we need is to get to a competitive, healthy industry that can compete in the world markets."

Kenneth D. Lewis, the chairman and CEO of Charlotte-based Bank of America Corp., which entered Michigan in a big way in October of last year by purchasing LaSalle Bank Corp., suggested one solution Tuesday for the ailing auto industry.

"There are too many automakers," and two of Detroit's mainstays should merge, Mr. Lewis said in an interview with the Associated Press after a speech in Detroit. According to the AP, he said that if he were overseeing the $700 billion of bailout funds, he would want a merger to prove that automakers were worthy of the financial aid they are seeking.

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