Jan. 2 (Bloomberg) -- National City Corp. fell to its lowest price in 12 years after Ohio's largest bank said it will eliminate 900 jobs and halve the quarterly dividend, the first reduction since the payout began in 1935.

The lender plans to raise capital and hired Goldman Sachs Group Inc. as its adviser, Cleveland-based National City said today in a statement. The bank is halting home loans through brokers and firing people who handle that business, bringing total cuts in 12 months to 3,400, or 10 percent of the staff.

National City is still reeling from the U.S. housing slump a year after selling its subprime mortgage unit. Chief Executive Officer Peter Raskind said in an interview today that home price declines in California are hurting results. The company now expects to make $15 billion to $20 billion in home loans in 2008, compared with a previous projection of $35.7 billion.

``The housing market was poised for a correction and then it corrected with a high degree of suddenness,'' Raskind said. ``It's not clear to me that anything can be done prudently to dramatically improve that process.''

The bank fell 87 cents, or 5.3 percent, to $15.59 in 4:01 p.m. New York Stock Exchange composite trading, the biggest drop in three weeks. The stock lost 55 percent in 2007.

National City will pay 21 cents a share on Feb. 1 to shareholders of record on Jan. 14. The dividend was previously 41 cents a share, putting the annualized yield above 10 percent.

The yield for Washington Mutual Inc., the biggest U.S. savings and loan, also exceeded 10 percent before the Seattle- based company reduced its payout last month by 73 percent.

High Yields

Among banks listed in the Standard & Poor's 500 Stock Index, Memphis-based First Horizon National Corp., the largest bank based in Tennessee, still yields more than 10 percent. First Horizon will probably be next to cut its payout, analyst Paul Miller of Friedman, Billings, Ramsey Group Inc. said in an interview on Bloomberg TV.

``The banks have to preserve capital and the first step is to cut the dividend,'' Miller said. He rates First Horizon ``market perform.''

``National City is probably at the front edge of cleaning up the mess,'' said analyst Gerard Cassidy of RBC Capital Markets, who has an ``underperform'' rating on the bank. ``Others are going to follow. The housing problems are going to continue through 2008.''

Foreclosure Rate

U.S. home foreclosures rose 68 percent in November from a year earlier as adjustable-rate mortgages left subprime borrowers unable to meet higher payments, according to RealtyTrac Inc., an Irvine, California-based seller of housing information.

Most of National City's problem loans stem from markets including California where prices surged and then declined, Raskind said. Lending through brokers made up about half of National City's home loans last year, Raskind said.

About one-third of the bank's branches are in Ohio and Michigan, with 97 offices in Florida. Florida has the second- highest foreclosure rate in the U.S., while Ohio ranked third and Michigan ranked sixth, according to RealtyTrac.

The bank will continue making home loans through its 300 mortgage offices and 1,448 bank branches, spokeswoman Kristen Baird Adams said. It had about 34,000 employees as of Sept. 30, according to a regulatory filing.

The bank said it plans to raise ``non-dilutive'' capital in the first quarter of this year to improve its so-called Tier 1 capital ratio, which is used to assess a bank's ability to withstand loan losses. The bank on Dec. 31 was above ``well- capitalized levels'' set by regulators, Treasurer Thomas Richlovsky said, without disclosing the figures.

Preferred Shares

National City is likely to sell trust preferred securities, which regulators treat as capital rather than debt and doesn't dilute common shares, said Christopher Bingaman, a portfolio manager at Diamond Hill Investment Group I Cincinnati. National City sold $150 million of 40-year trust preferred securities in August.

National City on Dec. 17 took a $200 million charge related to the declining value of mortgage securities and said it expects to set aside about $700 million in the fourth quarter to cover bad loans. The bank said it has ``elevated risk'' from loans made by its former First Franklin unit and its closed National City Home Equity business. National City sold First Franklin, which principally made loans to borrowers with less than prime credit, to Merrill Lynch & Co. in December 2006.

``Given their earnings and dividend levels, the market should have seen this coming because National City couldn't sustain that payout, given their fairly thin capital level,'' Bingaman said. Diamond Hill does not own National City's common shares.

Bank of America Corp., the nation's second-largest bank behind Citigroup Inc., said in October it would stop making loans through brokers, a business called wholesale lending. The move will lead to 700 job cuts, Charlotte, North Carolina-based Bank of America said.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: January 2, 2008 16:30 EST