(Reuters) - National City Corp NCC.N said on Wednesday that it may sell "problem" assets or put some of them in separate entities, after large mortgage losses drove Ohio's largest bank to raise $7 billion of capital.

Speaking at a Lehman Brothers Inc conference in London, Chief Executive Peter Raskind said National City is evaluating its alternatives "along with our many friends on Wall Street."

He said the bank could review "various forms of good bank/bad bank structures" for troubled assets, including several billion dollars of lower-quality mortgages it kept when it sold its First Franklin Financial Corp subprime lending business to Merrill Lynch & Co MER.N in 2006.

It said it was still trying to sell $5.3 billion of non-prime home loans as of March 31, after getting rid of just $407 million in the first quarter.

Raskind, however, said he would be cautious in selling assets. He said that while largely illiquid markets have "firmed" in recent weeks, sale prices for distressed assets remained "punitive," ensuring losses for sellers.

Cleveland-based National City raised $7 billion last month from Corsair Capital LLC and other investors after its strategy of being a major U.S. mortgage lender and acquiring two Florida banks as the real estate market was cresting broke down.

Raskind said the new capital left the bank's capital ratios far in excess of regulatory minimums and should be sufficient to absorb a potential $3.15 billion of future losses on home equity loans and non-prime mortgages.

National City has refocused its mortgage business on smaller, high-quality loans, and Raskind said mortgages will constitute less than 5 percent of the bank's business in 2008, down from 38 percent in 2003.

While mortgage operations had "defined National City" in recent years, he said, "I'm very confident that that will not be the case in the future."