National City Taking Ax to Costs
Saying they wanted to restore earnings to prerecession levels, the top officers of Cleveland-based National City Corp. on Tuesday announced plans to slash the company's annual expenses by at least $50 million.
National City said it would reconfigure its branch network, cut layers of management, and streamline back-office support systems. The banking company said the annual savings would begin to kick in during 1992 and would be fully realized by the end of 1993.
Hefty Loan-Loss Provisions
The move follows a series of rocky quarters in which loan defaults necessitated unusually high loss provisions that in turn cut earnings.
National City's second-quarter provision of $47.19 million, for example, was 60% higher than the provision in the year-earlier period. Annualized return on average equity in turn sank to 12.39% from 17.51%, and net income fell to $56 million from $68 million.
"It is no longer business as usual," said chairman and CEO Edward Brandon. He said a decade-long expansion drive - which added more than $15 billion of assets and 9,000 employees - "caused operating expenses to escalate to unacceptable levels." Washington-based McKinsey & Co. helped devise the savings goal.
National City common stock rose 75 cents to $39.75 in early trading Tuesday.
Weak Position for Acquisitions
Management has been frustrated because earnings and the stock multiple have fallen below those of top regional competitors, said Henry Dickson, a banking analyst in the Chicago office of Kemper Securities Group Inc. The situation "makes it more difficult" for National City to compete in bank acquisitions, he said.
With its stock currently trading at a 44% premium over book value of $27.56 per share, for example, National City appears to be at somewhat of a disadvantage in the bidding for Ameritrust Corp. The stock of rival suitor Banc One Corp. is trading at a 138% premium over book.