April 22 (Bloomberg) -- National City Corp. joined Wachovia Corp. and Washington Mutual Inc. to tap what KBW Inc. calls ``an abundance'' of capital, after losses tied to slumping home prices made U.S. financial firms a bargain for new investors.

KBW has identified 23 lenders that may need to raise $12.4 billion as bad loans pile up, including Bank of America Corp., second-largest in the U.S. by assets, and Sovereign Bancorp Inc., the second-biggest savings and loan. Cleveland-based National City, Ohio's biggest bank, agreed yesterday to sell a $7 billion stake to a group led by Corsair Capital LLC.

Banks and securities firms have raised or announced plans to seek at least $163 billion in capital amid losses on subprime- related securities. Private-equity and sovereign-wealth funds are negotiating deals to replenish capital in return for stakes at discounted prices, driving down the value of shares held by existing investors.

``There's an appetite out there for risk, but at a price,'' Jason Arnold, an analyst at RBC Capital Markets in San Francisco, said yesterday in a phone interview. ``Companies themselves are really desperate to get capital.''

Bank of America, based in Charlotte, North Carolina, may need $7 billion and Philadelphia-based Sovereign may need $1 billion, wrote KBW analysts including Melissa Roberts. Sovereign is scheduled to report first-quarter results tomorrow.

Banks are shying from mergers and acquisitions on concern that more writedowns are coming, and that's paving the way for buyout firms and sovereign wealth funds to invest, she said.

Dilution Ahead

``The capital raises are dilutive, so that's not necessarily the best thing for a current shareholder,'' Roberts said in an interview.

National City agreed to sell the Corsair stake at a discount to market price, and increased the size of the offering after finding strong demand. The move, which may dilute existing shareholders by more than 50 percent, sent the stock plummeting almost 28 percent and drew complaints from investors who asked during a conference call whether there wasn't ``a more palatable alternative.''

The bank had to raise enough capital ``to stabilize our debt ratings, beyond a shadow of a doubt,'' National City Chief Executive Officer Peter Raskind responded, citing speculation about the bank's condition. ``We had counterparties who were uncomfortable interacting with us. That had to stop.''

Once ranked among the 10 biggest originators of ``subprime'' loans to people with poor credit histories, the bank plans to raise $6.37 billion selling convertible securities. The sale of common stock accounts for the rest of the capital infusion. The buyers may include some of the largest existing stakeholders, the bank said.

`More Incentive'

National City rose 3.8 percent to $6.26 in 4 p.m. New York Stock Exchange composite trading today after dropping 83 percent in the previous 12 months.

The stock was upgraded to ``buy'' from ``sell'' by Deutsche Bank AG analysts including Mike Mayo, who wrote management ``has shown more conservatism'' in cutting the dividend to 1 cent from 21 cents and selling the stake to Corsair.

While National City's move was ``incredibly painful'' for existing shareholders, management has ``more incentive to run the company for the interests of the shareholders than at any time in its history,'' Mayo wrote.

``We are not making any excuses for this company which has woefully underperformed on almost any measure,'' Mayo wrote. He said National City's management will be more aggressive about managing expenses.

Need for Capital

Royal Bank of Scotland said today it would sell $24 billion of shares in Europe's largest rights offering and cut its 2008 dividend to rebuild capital eroded by writedowns. The bank's shares fell almost 4 percent in London trading.

Trying to escape a cash squeeze, CIT Group Inc. sold $1.5 billion in common and preferred stock at a 14 percent discount to yesterday's $12.74 closing price. The stock fell 16 percent to $10.75 at 4:02 p.m. in New York trading, the most in a more than a month.

Washington Mutual, the largest U.S. savings and loan, raised $7 billion from an investor group led by TPG Inc. on April 8. The Seattle-based company sold 176 million shares at $8.75 apiece, a 33 percent discount to the previous day's close.

Washington Mutual's stock has declined 4 percent since it announced the capital agreement, which drew complaints from shareholders concerned about the dilution. The lender's stock was little changed today, falling 6 cents to $11.37 at 4:15 p.m. New York time.

First Horizon

The supply of capital has been depleted by past deals and new buyers are increasingly able to negotiate favorable terms at t he expense of existing owners, Christopher Mutascio, an analyst at Stifel Nicolaus & Co. said today in an interview.

First Horizon National Corp., Tennessee's largest bank, said April 17 its first-quarter provision for loan losses rose more than sevenfold to $240 million from $28.5 million a year earlier. The loan portfolio has ``significant exposure to construction and home-equity loans, two areas we expect to remain under pressure,'' Roberts wrote in her report.

``We anticipate the necessity of a capital infusion,'' Roberts said, estimating the lender may need to raise $1 billion to keep capital ratios above regulatory minimums.

IndyMac Bancorp Inc. may need to raise as much as $500 million, Roberts wrote. The Pasadena, California-based company, the second-largest independent U.S. mortgage lender, posted the first annual loss in its 23-year history last year and has now eliminated the dividend.

First Horizon fell 11 cents to $11.72 and IndyMac fell 10 cents to $3.95 at 4:15 p.m. in New York trading. First Horizon's stock fell 70 percent in the previous 12 months, and IndyMac is down 87 percent in the last year.

Wachovia

Wachovia, the fourth-largest U.S. bank, raised more than $8 billion earlier this month -- $1 billion more than first announced -- in a stock offering after bad home loans in California triggered a first-quarter loss. The common stock was priced at a 14 percent discount. There was a ``significant oversubscription'' for shares of the Charlotte, North Carolina- based company, Chief Executive Officer Ken Thompson said in a statement.

Private-equity firms may be pushing lenders to load up on capital to avoid future cash infusions, said Richard Bove, a Lutz, Florida-based analyst at Punk Ziegel & Co.

``If you go to one of these private-equity funds, and you raise this money, they don't want you to see you coming to market six months, three months later and diluting their capital,'' Bove said.

To contact the reporters on this story: Linda Shen in New York at lshen21@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net

Last Updated: April 22, 2008 16:30 EDT