PNC races to wrap up National City takeover

Shareholders vote Tuesday; National City acquisition would make it 5th largest in U.S.

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PNC Financial Services' shotgun courtship of National City Corp. is expected to be consummated on Tuesday, with a shareholder vote that stands to reconfigure the region's financial landscape, turning what is already Pittsburgh's dominant bank into the fifth-largest deposit holder in the country.

Approval by the two banks' shareholders is the final major action required in order for the acquisition -- which has already received the blessing of the Federal Reserve Board and the U.S. Justice Department -- to be completed by Dec. 31.

"We're still working on some wordsmithing we're going to do between now and Tuesday," said PNC's CEO, James Rohr. "Everybody is just working two or three times as hard as they were before, to try to get everything in place for the closing on 12/31," completing in 10 weeks what might usually require three months or more.

Mr. Rohr, in an interview with the Post-Gazette on Friday, said when the new year begins -- and supposing the acquisition is approved by shareholders -- PNC will begin pricing and packaging the National City portfolios that it hopes to unload.

Ohio's largest bank was ripe for the picking largely because of its troubled loan portfolios, especially its $17 billion in high-risk loans, which were forecast to suffer losses between $3.5 billion to $11 billion over the lives of the loans.

National City also made an untimely entry into Florida, acquiring Fidelity Bankshares Inc. and Harbor Florida Bancshares, just as Florida's real estate market was tanking.

PNC hopes to include those Florida loan assets in its "exit portfolio," the bits of business that PNC will jettison in the coming months and years.

PNC also needs to shed some 61 National City branches to comply with the Justice Department's antitrust mandates. The banks are distributed around five separate regions -- Pittsburgh, Erie, Meadville, Titusville and Warren, Ohio -- and the Justice Department wants all of the branches in each area to be purchased by a single bank, meaning up to five banks, or as few as one, could buy the remaining branches.

"We'll have a buyer in 60 days," Mr. Rohr said. "There are new competitors interested in them, and there's existing banks within the market that want to grow.

"I don't know who will win."

On the flip side of all the shedding and streamlining (PNC says it anticipates $1.2 billion in savings related to efficiencies of scale), PNC will be adding business lines that it had previously discarded, and will be keeping National City's rewards program, which gives customers "points" for certain transactions, and allows those points to be redeemed for prizes.

"They're in the mortgage business. ... We're looking hard at that," Mr. Rohr said. "They're in the credit card business in a way that we're not. So we'll use that and grow that across our footprint. We'll actually get back into those businesses."

PNC sold its mortgage-origination business to Washington Mutual in 2002, and likewise uses a third-party vendor to issue credit cards.

Unhappy in Ohio

The deal was, and remains, controversial in that PNC received what's been called a "sweetheart" deal because of tax breaks worth up to $725 million. To raise money for the purchase, PNC sold the government $8.8 billion in preferred shares and warrants, a chunk of the federal bailout investment package that some think should have gone to help National City directly.

National City was the only bank among the 25 largest in the nation that didn't directly benefit from the government's $700 billion Troubled Assets Relief Program.

Ohio lawmakers also questioned why PNC was able to buy National City's shares at such a discount -- almost a full fifth less than the bank's stock was trading for on Oct. 23, the day before the sale was announced. On Oct. 23, National City shares closed at $2.75, and the next day PNC was offering $2.23 per share, an 18.9 percent next-day discount.

"A bank that has existed since the American Civil War, survived the Great Depression, can't survive eight weeks of the TARP," said Rep. Steven LaTourette, R.-Ohio, in a statement submitted to the House Financial Services Committee.

"National City wanted help and was shot down every step of the way," he said.

Another lawmaker, Sen. Sherrod Brown, D-Ohio, was more resigned to the deal, noting that if National City wasn't purchased, there's no telling how many jobs might have been lost.

"If the acquisition is successful, he looks forward to working with PNC so that as many jobs as possible remain in Ohio," Mr. Brown's communications chief, Joanna Kuebler, said Friday.

Even if the shareholders approve the deal, the new PNC will still have to deal with class-action lawsuits from groups of shareholders who believe PNC undervalued National City's shares, at a total sales price of $5.6 billion. One class-action complaint, filed by Rigrodsky & Long of Wilmington, Del., and Dreier LLP of New York, says that the deal is "an opportunistic attempt to take advantage of National City's flagging stock price and is financially unfair."

Another class-action suit was filed by Johnson Bottini, LLP, of San Diego.

"The price is too low, and the process used is unfair," said partner Frank Johnson.

"It's difficult to tell what a fair price would be in this market," but certainly, he said, it would be higher than the per-share sales price of $2.23.

If the sale is approved, the injunctions being requested by the various class-action suits would be moot, but the plaintiffs could still win damages.

Once the purchase is approved, PNC would be the fourth-largest consumer bank by number of branches (2,747), trailing Wells Fargo & Co. (which just bought Wachovia), Bank of America, and JPMorgan Chase & Co. (which bought Washington Mutual). With combined deposits of $180 billion, the new PNC would rank below the four above-mentioned banks, as well as Citigroup.

PNC's share price closed down at $44.39 on Friday, below its 52-week high of $87.99.

Bill Toland can be reached at or 412-263-2625.


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