National City Courted by Fifth Third, KeyCorp

By , Money Morning •

By Jennifer Yousfi
Managing Editor

Fifth Third Bancorp (FITB) is eying larger rival National City Corp. (NCC), the ninth-largest U.S. bank with approximately $150 billion in assets, as a potential acquisition target, according to several media reports.

National City was forced to take a $333 million fourth quarter loss due to an ill-timed push into the residential mortgage market with a heavy emphasis on subprime loans. The Cincinnati-based bank also recently expanded its retail branch network into Florida, an area that has been hit particularly hard by the slowdown in the real estate market.

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Cleveland-based Fifth Third is the 12th-largest U.S. bank with $110 billion in assets. The two banks key market areas overlap and a merger could potentially offer a sizeable cost advantage.

KeyCorp (KEY), another Cleveland-based bank with about $100 billion in assets is also considering an offer for National City, with the backing of private equity firm Kohlberg Kravis Roberts & Co.

But KeyCorp has a sizeable portion of its business in the Northwest and Rocky Mountain region, potentially making it a less than perfect fit for a merger with National City. A Fifth Third/National City merger would prove a formidable rival.

"Both of those companies because of the overlap with National City would be able to cut costs," Terry McEvoy, an analyst at Oppenheimer & Co. (OPY) told Reuters, referring to KeyCorp and Fifth Third. "Cutting costs would support a higher price should the one option National City decides be to sell out."

Any potential merger would be complicated and a deal has yet to be reached.

"While we never comment on potential mergers, we have consistently said that we are focused on strategic opportunities for in-market consolidation," a Fifth Third representative said, The Wall Street Journal reported.

National City declined to comment, other than to say the bank was investigating options with the help of hired advisor, Goldman Sachs Group Inc. (GS).

News and Related Story Links:

  • CNNMoney:
    Fifth Third mulling bid for National City: report