Aug. 8 (Bloomberg) -- National City Corp., Ohio's largest bank, said the U.S. Securities and Exchange Commission started an informal probe into the company's lending and the sale of its subprime home unit to Merrill Lynch & Co.

The bank was asked in June to provide the regulator with ``certain documents concerning its loan underwriting experience, dividends, bank regulatory matters and the sale of First Franklin Financial Corp.,'' Cleveland-based National City said in a filing today. First Franklin was sold to Merrill Lynch in December 2006 for $1.3 billion.

``We are voluntarily cooperating with the SEC,'' said spokeswoman Kristen Baird Adams in an interview. ``Given the volatility in the market and certainly in our stock price in particular, the action is not surprising.''

The notice adds another layer of scrutiny for National City, which said in June said it had signed an accord with the Office of the Comptroller of Currency tied to capital, risk and liquidity management. The bank wouldn't elaborate. National City has been the worst-performing stock tracked by the 24-company KBW Bank Index this year, losing almost 70 percent.

National City's shares added 10 cents, or 2 percent, to $5.12 in 4:15 p.m. New York Stock Exchange composite trading.

Merrill Lynch, the third-biggest U.S. securities firm, bought San Jose, California-based First Franklin and its affiliated units just as the U.S. housing market peaked. The deal, which aimed to assure Merrill's trading desk a supply of mortgages that could be packaged into bonds, backfired as investors began shunning securities linked to subprime loans, which are made to borrowers with the weakest credit.

Merrill Lynch has lost money for four straight quarters, driven in part by losses tied to subprime home lending. The First Franklin unit stopped making new home loans in March, and its workforce has fallen from 2,300 to fewer than 100.

To contact the reporter on this story: Linda Shen in New York at lshen21@bloomberg.net

Last Updated: August 8, 2008 17:38 EDT