On January 22, 2008, National City Corporation, a Cleveland-based bank holding company, announced (here) a fourth quarter loss of $333 million, including a write-down of $181 million on its mortgage business and a $691 million provision for credit losses. On January 24, 2008, the company was hit with a securities class action lawsuit.
According to their January 24 press release (here), the plaintiffs’ counsel filed a complaint (here) against the company and certain of its directors and officers in the United States District Court for the Northern District of Ohio.
According to the plaintiffs’ counsel’s press release, the complaint alleges that:
In October 2007, National City announced a big decline in earnings due to losses related to its mortgage business but assured the market about the dividend. Then, on January 2, 2008, the Company announced a 49% reduction in its quarterly dividend to $0.21 per share from $0.41 per share. On this news, National City’s stock dropped from $16.46 per share to as low as $15.45 per share, closing at $15.59 per share on January 2, 2008 on volume of over 12.7 million shares.
The true facts, which were known by defendants but concealed from the investing public during the Class Period, were as follows: (a) the subprime mortgages on the Company’s books were a much bigger risk to the Company’s financial position than represented; (b) the Company was failing to adequately reserve for mortgage-related exposure, causing its balance sheet and financial results to be artificially inflated; and (c) defendants had no reasonable basis to make favorable predictions
about the Company’s future dividend payments and future financial performance given the problems in the business.
I have added the National City lawsuit to my running tally of subprime-related securities lawsuits, which can be found here. The addition of the National City lawsuit brings the total number of subprime-related securities lawsuits to 40. It is also the third subprime-related securities lawsuit to have been filed already in 2008 – further proof that the subprime lawsuits in 2007 were something more than a ‘one time event."