Bank heads called ‘greedy pirates of Cleveland’

It’s fairly easy and rather commonplace to speak disparagingly about an employer you no longer work for. Still, to call one’s ex-bosses “the scum-sucking, money-hungry, greedy pirates of Cleveland” might seem like strong language on the surface. Yet these were the exact words of an ex-employee of Cleveland’s National City Bank, who posted a comment in the online edition of the Cleveland Plain Dealer.

The writer was probably thinking about the fate of his former co-workers, the 32,000 employees of Cleveland’s largest bank who are facing a rerun of the Enron pension scandal. Last month their 401k plans became practically worthless as NCB stock fell 43 percent in one day, to a 17-year low of $7.52 a share. Now that stock, in which workers retirement savings have been invested, is valued at $6.56 compared to $38 a year ago. The situation is devastating.

Over 10 percent of the workers have been laid off. Those still working are anxious. Recently NCB announced major losses for the fourth quarter of 2007 and the loss of half a billion dollars in its mortgage division last year. Speculation in the media focused on the possible sale of NCB, which is a Fortune 500 company and the tenth largest U.S. bank, or its merger with another bank. This would have undoubtedly meant more layoffs.

Instead, a group of investors led by former JP Morgan division Corsair Capital LLC will buy a 50-percent stake in the distressed lender. “The deal will preserve the 163-year-old bank’s Cleveland headquarters—a huge relief to 7,800 local workers and to a community that doesn’t want to lose another Fortune 500 company,” the Plain Dealer reported on the Sunday evening the bailout was announced. Yet such buyouts usually come with strings attached—demands for “cost-cutting,” that is, job cuts.

These bank workers are the latest to suffer from a crisis not of their own making. Their precarious economic position stems from NCB’s predatory lending policies, including the 1999 purchase of the California-based subprime mortgage giant, First Franklin. Prior to that, only five percent of NCB’s total profits, or $50 million, came from mortgages. By 2003 that figure had grown to 50 percent, or $2.3 million per day!

In 2006 NCB sold First Franklin to Merrill Lynch for $1.3 billion—six times what it paid for the firm—but was left holding $10 billion worth of subprime loans. The bank still holds $6.6 billion of that $10 billion and $17 billion in home equity debt, including $11 billion in “piggyback” loans.

The Plain Dealer explains that “A piggyback loan works like this: A person who had no down payment could get an 80 percent first mortgage at a low rate and a 20 percent second mortgage at a slightly higher rate. It benefits the borrower. But since the consumer has absolutely no equity in the home, he has less motivation to repay the loan and that leaves the lender with 100 percent of the liability.”

Now, plunging home prices in Ohio have left homeowners owing more than the value of their property, and the country’s sixth largest mortgage lender with $25 billion worth of debt it cannot sell.

Like steelworkers, autoworkers or any other workers, the bosses consider bank workers expendable. When Merrill Lynch closed the now worthless First Franklin last month, 2,100 employees got the axe. Among the NCB workers laid off are 450 in the now closed home equity loan division and 900 in the mortgage division.

NCB’s previous CEO David Daberko—the architect of the lending monster’s destructive strategy—departed after three years of “service” with compensation totaling $46 million.