National City Inc. (NYSE: NCC), has fallen on reports that the Bank of Nova Scotia (NYSE: BNS), the second largest Canadian lender by assets, has offered an minority investment in the troubled bank.

National City has written down some $333 million in the fourth quarter, largely due to its exposure to the wonderful Florida and Ohio housing markets.  The bank has also been noted recently as being under pressure from regulators to boost its capital and reserves or to find a potential buyer before first quarter results are released this month.

Supposedly both KeyCorp (NYSE: KEY) and Fifth Third Bancorp (NASDAQ: FITB) have offered bids or investments that are that articles have called as being "too low" for National City to swallow.   Frankly, Fifth Third is another bank that has been deemed as one of the potential targets out there, so we’d have more questions than answers on that situation.  Elsewhere, Consair Capital has also been noted as "considering a bid" while Warburg Pincus LLC has gone away.

Interestingly enough, this potential deal would allow Bank of Nova Scotia to further access U.S. markets.  Until any formal word or real terms surface, we’d keep this classified as a rumor for the time being rather than gospel.

National City shares are down over 3% more today at $8.60 in early afternoon trading today after the reports that Nova Scotia plans to bid.  Its 52-week range is $6.56 to $38.32.

As we have been screening this one for our special situations and for our under $10 stocks newsletters, we would warn that if a deal comes it isn’t one that would be assured generosity.  The big deals that have come to other in-trouble financial firms have been scalps and takeunders for existing shareholders.

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Jon C. Ogg
April 11, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at [email protected] and he does not own securities in the companies he covers.

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