National City Corp.'s stock price plunged Tuesday after the Cleveland company announced that fourth-quarter and full-year earnings will be short of expectations.

Though the $85 billion-asset banking company attributed the shortfall to rising interest rates, other bank stocks were unscathed Tuesday after the Federal Reserve raised the federal funds rate by one-quarter of a percentage point, to 5.5%, and its discount rate by the same amount, to 5%.

Indeed, bank stocks closed the day up a bit. The American Banker index of the 50 largest U.S. banks rose 1.6%, as did the American Banker 225.

National City's stock opened 8% below Monday's close and closed at $28.875, down 4.2% for the day. The company said fourth-quarter and annual income is expected be 2 to 5 cents below analysts' consensus estimates of $2.25, because of pressure on interest rate margins.

"What National City is facing -- much like all banks -- is funding pressure as loan growth continues to outpace deposit growth," said Fred Cummings, an analyst for McDonald Investments, a KeyCorp unit.

Rather than fearing that other banks might face similar pressures on their interest margins as a result of the Fed's increase Tuesday, market reaction to the rate hike appeared to be one of relief. While raising rates, the central bank moved to a "neutral" stance, indicating that it did not expect to increase rates further in the near future. Until Tuesday, the central bank had maintained a tightening bias.

Before National City's announcement, consensus estimates for the company were 59 cents a share for the fourth quarter and $2.25 for the year, according to Thomson First Call. National City said the revised outlook indicates earnings-per-share growth in the 10 to 11.5% range, rather than the consensus expectation of 12.5%.

"It's a good year by normal standards, but in terms of meeting our expectations, it's a disappointment," said Thomas A. Richlovsky, senior vice president and treasurer at National City. "Out of a host of factors that affect the margins, every single one of them conspired to (negatively) affect the margin and took us by surprise."

Analysts said the stiff competition for loans has put pressure on bank interest rate margins, forcing companies such as National City to cut prices on loans to attract customers.

Carla D'Arista, an analyst for Friedman, Billings, Ramsey in Arlington, Va., said that loan competition in the Midwest is so fierce that banks are hard-pressed to raise rates. Such banks as Firstar Corp. and Fifth Third Bancorp "have really made a business of eating everybody's lunch," she said.

While loan growth is growing at a good clip, banks are finding it difficult to expand low-cost deposits as quickly. Many customers are seeking higher yields, and many are shifting their money to the stock market.

Mr. Cummings of McDonald Investments said National City must also contend with a runoff of loans it got from its acquisition of First of America Bank Corp. in 1997. In the first nine months of 1999, National City let 4% of its commercial and commercial real estate loans run off because they did meet its standards.

Mr. Richlovsky, however, said the run-off was helpful to National City because the loans that had runoff have been replaced by higher yielding assets.

Keefe, Bruyette & Woods reduced its rating on National City to "market perform," from "buy," and Salomon Smith Barney shifted its rating to "outperform," from "buy." Friedman, Billings, Ramsey & Co. downgraded National City to "accumulate," from "buy."

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