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PNC Buying Ailing Bank

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The Associated Press

The Tampa Tribune

Published: October 25, 2008

NEW YORK - PNC Financial Services Group said Friday that it is acquiring National City Corp. for $5.58 billion in one of the first concrete signs of how banks could use fresh investments from a government bailout program.

The deal comes within hours of PNC Financial receiving approval for $7.7 billion in cash from the government under the $750 billion government program aimed at relieving the ongoing credit crisis.

The agreement combines Pittsburgh-based PNC with National City, a large, Cleveland-based regional bank weighed down by high-risk mortgage loans, and is the latest deal in the rapidly consolidating banking industry.

The acquisition makes PNC Financial the nation's fifth-largest bank by deposits and will give it the fourth most branches, said James Rohr, PNC's chairman and chief executive. The new combined bank will have about $180 billion in deposits and more than 2,700 branches.

"PNC now becomes a major force in retail," said Bart Narter, a senior vice president in the banking group at consulting firm Celent. "PNC just doubled in size for not a lot of money."

PNC will pay $5.2 billion for National City through a stock transaction that values National City at about $2.23 per share, an 18.9 percent discount from Thursday's closing price of $2.75. The remaining $384 million will be a cash payment to certain warrant holders.

National City shareholders will receive 0.0392 shares of PNC common stock for each share of National City they own.

Shares of PNC rose $2, or 3.52 percent, to close at $58.88 on Friday.

The government plan calls for the U.S. Treasury to purchase preferred stock and warrants from banks in return for fresh capital. The plan is designed to help banks that have been struggling since the middle of 2007 with rising mortgage defaults and a credit crisis that has essentially shut down lending among banks and severely restricted lending to consumers.

The government will receive warrants to acquire a 15 percent stake in PNC Financial. The warrants will be good for 10 years unless retired by PNC, the company said.

With the government investment, and after the acquisition, PNC said its Tier 1 capital ratio will be about 10 percent, well above regulatory standards for a "well capitalized" bank.

Rohr said the bank will not need to raise capital through a common stock offering to help pay for the deal, but said it would consider a stock raise in the future, depending on market conditions, to help further improve capital ratios.

PNC Financial said it will aggressively take write-downs and increase reserves on National City's loan portfolio when the deal closes.

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