National City Receives Indemnification Notice Related to First Franklin Sale

April 21, 2008 No Comments »


National City disclosed today that it received an indemnification claim notice from Merrill Lynch related to the sale of subprime mortgage subsidiary First Franklin Financial in late 2006.

The notice, which was revealed in an SEC filing dated April 21, alleges that National City “breached certain representations or warranties contained in the Purchase Agreement surrounding FF Mortgage Company’s alleged losses associated with its claimed repurchase of loans.”

The Cleveland-based bank and mortgage lender said that given the preliminary nature of the notice, it was unable to estimate any material adverse outcome or potential loss, assuming one is actually realized.

Merrill acquired First Franklin for $1.3 billion in December 2006, just months before serious problems in the mortgage market began to surface, leading to substantial losses at the brokerage house and the eventual ousting of then CEO Stan O’Neal.

Many analysts questioned the timing and price tag associated with the purchase, considering weakness in the mortgage industry was already seemingly evident.

Just over a year later, the investment bank decided to shut down First Franklin because of the collapse of the subprime mortgage market, leading to hundreds of layoffs and a related charge of approximately $60 million.

Shares of National City fell $2.30, or 27.61%, to $6.03 in trading Monday after the company reported a $171 million first-quarter loss.

The regional bank has lost nearly 85 percent of its value over the last 52 weeks as a result of the ongoing mortgage crisis, leading to takeover speculation.

(photo: yogi)

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