On June 19, The New York Times business section led with an article titled, "Regional Banks are Rocked." The accompanying graphic indicated that National City Bank lost 86 percent of its market value since the beginning of this year.
No wonder. The news has not been good. On June 10, Peter Raskind, chairman and CEO of National City, acknowledged publicly that on Feb. 5, the bank had been placed under a memorandum of understanding by the comptroller of the currency. An MOU is, in effect, a probation sentence usually enforced against an institution that has capital or liquidity problems or both. There is an irony here. Almost two decades ago, the current president and CEO of National City for Indiana, Steve Stitle, and I were elected to the board of Merchants National Bank, a national banking institution that had served central Indiana under the leadership of the Frenzel family for three generations.
Stitle, an Indianapolis native, graduated from Indiana University with a degree in economics and political science. He also earned a law degree from the Indiana University School of Law. He proved his mettle as corporate vice president and board member of Eli Lilly and Co.
Stitle and I looked forward to serving this highly regarded bank for many years. It was therefore a surprise that, at our first meeting, we were addressed by a member of the Office of the Comptroller of the Currency who formally placed Merchants under an MOU.
At the same time, something else was brewing.
When writing the history of banking in Indiana, most commentators reason that banks in Indiana did not develop into mega-institutions or even achieve regional status because of the sluggishness of the Legislature in permitting cross-county banking. That's not the whole story. The failure in Indiana could have been partially avoided had Indiana's largest banks merged.
In fact, highly confidential negotiations between Merchants and Indiana National Bank, the only other locally operated national bank of any size in central Indiana, were earnestly taking place. The negotiations collapsed when the CEOs of the institutions could not decide who would lead the new entity. In addition to the Legislature, it was ego that kicked the banking industry in Indiana to the curb.
Merchants scrambled and found a white knight in National City, headquartered in Cleveland. The bank sent Vince DiGirolamo from the home office to rescue Merchants from the problems delineated in the MOU. Stitle and I watched the drama unfold from a distance-new directors sat in the back of the room.
After about a year on the board, we went our separate ways. I helped establish The National Bank of Indianapolis and Stitle assumed his present position at the new entity for National City in Indiana.
Unfortunately, the white knight has been unseated by its own MOU. But National City is not the only bank doing business in Indiana whose stock has been "rocked." The same Times graphic proved that the market has been brutal to Marshall and Ilsley (-55 percent), Regions (-67 percent), Key (-70 percent), Huntington (-75 percent), and Fifth Third (-78 percent). It is rumored that other institutions doing business in central Indiana are operating under MOUs.
National City has taken steps to comply with the MOU and to insure the institution's viability. It raised $7 billion in capital from numerous shareholders, which, according to Raskind, gave the bank the highest measure of principal reserve strength among large U.S. banks.
A vibrant Indiana economy requires a strong and competitive financial services industry. National City plays an important role in that regard. The bank employs almost 2,000 bankers within the state, and in 2007 was ranked one of the largest small-business lenders by the U.S. Small Business Administration. Under Stitle's direction and leadership, the bank is an important citizen in the not-for-profit arena, donating significant dollars and supporting many causes.
Let's wish a speedy recovery to National City and good health for the entire banking community in Indiana.
Maurer is a shareholder in IBJ Media Corp., which owns Indianapolis Business Journal. To comment on this column, send e-mail to firstname.lastname@example.org.