PNC Becomes First Bank to Utilize TARP Funds with Acquisition of National City

By Jennifer Yousfi
Managing Editor
Money Morning

PNC Financial Services Group Inc. (PNC) became the first U.S. bank to make use of the government’s Troubled Assets Relief Program (TARP) with its plans to purchase National City Corp. (NCC).

Pennsylvania-based regional bank PNC announced today (Friday) that it would purchase Ohio-based National City in an all-stock transaction that values the struggling regional bank at $5.2 billion. Shareholders will receive 0.0392 PNC share for each National City share, or $2.23 per share, 19% less than National City’s closing price yesterday (Thursday).

In order to help facilitate the purchase, PNC will sell $7.7 billion in preferred stock and warrants to the Treasury Department’s bank recapitalization program.

"The acquisition of National City will increase our core deposit base to $180 billion, making PNC the fifth largest U.S. bank by deposits. At a time when core funding is key, we see our deposit strength as an important success factor,” said James E. Rohr, chairman and chief executive officer of PNC, in a company statement announcing the deal.   

With the funds from the TARP, PNC’s Tier 1 capital ratio, a measure of a bank’s stability, will increase to approximately 10%.

Regulators have been pushing for a sale of National City for months. The bank has been hard hit by the subprime mortgage crisis due to its ill-timed expansion into the Florida market, an area where the housing market slowdown has been particularly tough.

Analysts applauded the PNC deal and were optimistic about the TARP’s role in the transaction.

It certainly beats having these troubled banks end up being taken over by the government,” David Havens, a credit desk analyst at UBS AG (UBS) in Stamford, Conn., told Bloomberg News. “It's better for just about everybody that you have a private-market solution and the government facilitating to make sure it happens.”

National City Chief Executive Officer Peter Raskind will remain on as a vice chairman at PNC.

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