CLEVELAND - National City Corp. chairman and chief executive officer David A. Daberko is pinning his company's future on heavy investments in corporate and nonprime consumer lending and in-house technology.

Mr. Daberko acknowledged in a recent interview that the strategy will dampen profit growth in the near term. But the company had planned for 2000 to be "a year of real positioning for the future, in the sense of working on what we have and what we deliver to the customers and how they perceive us," he said.

National City, like many other regional banks, is facing severe challenges brought on by climbing interest rates - which are squeezing profits on loans - and slow deposit growth, which makes funding those loans more expensive.

The $87 billion-asset company has disappointed investors in recent months. Its earnings in the fourth and first quarters fell short of Wall Street estimates, and its stock price suffered for it. Its shares have lost 48% of their value in the last 12 months.

Many market watchers said they doubt National City can turn itself around quickly.

"I do fully expect their earnings to be down in 2000, and I don't expect earnings in 2001 to look materially better," said Susan L. Roth, an analyst at Donaldson, Lufkin & Jenrette in New York. She estimates that National City's earnings per share will grow a meager 4% to 6% next year.

"Earnings disappointments in 1999 and so far in 2000 cause me to be less than fully confident," Ms. Roth said.

"It's very hard to get momentum at a company the size of National City," said Timothy Willi, an analyst with A.G. Edwards & Sons Inc. in St. Louis. "It's not something you do in the span of a year."

Mr. Daberko has been on the defensive since interest rates began rising in autumn, but he insists his plan to emphasize specialty corporate and nonprime consumer lending is sound.

With interest rates on the rise, Mr. Daberko said, the company will do "a number of things to limit our interest rate exposure."

Just what those things are will be detailed in the next couple of months. Meanwhile, National City continues to expand its lending businesses.

For instance, last fall it bought First Franklin Financial Cos., a San Jose, Calif., nonprime home mortgage lender, for $266 million.

Nonprime and subprime lenders have fallen on hard times, also pinched by dwindling mortgage refinancing business, but National City says the business will help it diversify.

First Franklin originates loans that do not meet the guidelines of secondary market agencies but also do not fall into the category of subprime lenders, which deal with mostly first-time homebuyers.

This year, Mr. Daberko said, First Franklin should generate $5 billion of loans.

National City also plans to hold those loans on its balance sheet and thus reap fees from servicing the portfolio. That bucks the industry trend toward securitization. Mr. Daberko said the loans "offer better returns on the balance sheet."

National City should be wary of the First Franklin venture, Ms. Roth said, noting that an increasing number of subprime and nonprime lenders are going bankrupt. "It needs to be closely monitored," she said.

In corporate banking, National City is investing to build its presence in Detroit, Chicago, and Philadelphia. It has added 50 lending officers, mostly new hires, in those cities.

"These are the seeds of future business growth," said Tom A. Richlovsky, National City's treasurer. "We see great opportunity ahead."

In Philadelphia the new hires' goal is to write $1 billion of loans by yearend, an analyst said.

Turning to another 2000 priority, Mr. Daberko said: "We have taken up our technology spending substantially. A lot of this is Internet-based, but a lot of it is support for businesses that have grown."

Excluding last year's Y2K-preparedness expenses, National City expects to spend about twice the amount this year on technology.

It budgeted nearly $65 million for tech upgrades, including $22 million for Internet capabilities.

Nearly half of the $22 million will go toward improvements of National City's Web site and the rest will help the company refine online offerings in consumer banking, small-business, corporate, and investment banking. The remaining $43 million in the upgrade will be used to improve several areas of the company's computer systems.

Last year National City spent about $40 million on technology, including $10 million for Y2K conversion.

"They, like many other banks, must step up their technology spending," Ms. Roth said. "It's not a choice anymore; they must do it to stay competitive."

Denis Laplante, an analyst with Fox-Pitt, Kelton Inc. in New York, said National City is "missing their numbers because of margin and the technology spending" and that "investments in corporate banking are marginally negative from an earnings standpoint this year."

But he added, "I agree with the notion that those are good long-term building platforms."

For now, all National City can do is carry out its plan and wait for the payoff, Mr. Daberko said. The moves turn its attention to its core businesses and push acquisitions to the back burner.

"This is a period that really calls for discipline on our part and, frankly, putting in place the things we know are right," Mr. Daberko said. "It no longer is a year of consolidations, acquisitions, or Y2K.

"We're sticking with what we planned to do at the start of the year. I get a lot of suggestions from shareholders or others who say, 'What you ought to do is slash expenditures - you can make your targets by cutting costs.' The fact is we could, but it would be the wrong thing to do in the long term for this company."

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