PNC Financial Services Group yesterday emerged as the big winner in a blockbuster, trillion-dollar alliance between money manager BlackRock Inc. and Wall Street brokerage giant Merrill Lynch.

		Related article Appearance of conflict put to rest

The deal, if approved by regulators and shareholders, will provide the Downtown-based bank with at least $1.9 billion that it can use to buy back stock or make acquisitions, while still allowing it to keep a sizable stake in fast-growing, red-hot BlackRock -- and perhaps earn more from the New York bond specialist than it had previously.

The creation of a new asset management powerhouse -- 34 percent owned by PNC and 49 percent owned by Merrill Lynch -- is the latest hit on a recent hot streak for PNC Chief Executive Officer James Rohr, who was in Manhattan yesterday unveiling the new partnership. Four days earlier, Mr. Rohr, an avid golfer, hit his first-ever hole-in-one, at the AT&T Pebble Beach National Pro-Am in California.

"It has been a very fortunate week for me," Mr. Rohr admitted in an interview.

The bounces and breaks of the financial services industry continue to favor Mr. Rohr and PNC, which earned a record profit in 2005 and impressed Wall Street analysts with a comeback from a period of accounting irregularities and regulatory scrutiny three years ago.

The nation's 14th-largest bank now finds itself in an even stronger position following yesterday's transaction, which is expected to clear regulatory hurdles easily and close in September.

PNC's stock price already has increased 11 percent since the start of the year on news of potential deals for its publicly traded BlackRock unit, in which it owns a controlling 70 percent stake. PNC shares rose $2.10, or 3 percent, yesterday, closing at new 52-week high of $69.07.

The other parties in the transaction will benefit, too.

New York-based BlackRock will acquire Merrill Lynch's investment management business for $9.5 billion in stock, forming a company that will manage nearly $1 trillion in assets -- $544 billion from Merrill Lynch and $453 billion from BlackRock -- making it one of the top 10 asset managers in the world.

Merrill Lynch, in return, will receive the BlackRock shares, giving it a 49 percent ownership stake in the money manager and allowing it to pass off the job of money management to a higher performer. It also eliminates a potential conflict for in-house brokers worried about selling Merrill Lynch funds to their customers, an issue that has taken on heightened concern in the industry in recent years.

But there is little doubt that PNC is the big winner here, analysts said.

Pennsylvania's largest bank will continue to control 44.5 million shares of the combined company. That stake is worth about $3.7 billion, based on yesterday's BlackRock closing share price of $151.25, which was up 3.6 percent.

PNC also will have two seats on the new combined company's board of directors, including one seat on the executive committee.

Immediate gains for the bank will total $1.9 billion, based on yesterday's closing price of BlackRock stock and what PNC paid for it when it acquired the money manager in the 1990s. If it decides to sell its remaining BlackRock holdings, or if BlackRock dilutes PNC's ownership stake by issuing more shares, the bank has the potential to gain an additional $3.1 billion over time.

Even if PNC does nothing, though, it expects to earn more from BlackRock than it has in the past.

That's because the transaction with Merrill Lynch is expected to increase BlackRock's net income dramatically, giving PNC an even larger annual earnings contribution from the unit. BlackRock earned $233.9 million last year and serves as a consistent revenue source for PNC.

Moreover, PNC's mutual-fund processor PFPC, a division that already has a contract with BlackRock, could earn more fees by taking on additional work that comes from the transfer of Merrill Lynch funds to BlackRock.

Mr. Rohr declined to comment on that possibility yesterday. But "PNC would not do this deal if they thought they were going to lose that revenue" they now get from processing the BlackRock funds, said Andrew Seibert, who follows PNC as a senior portfolio manger with Downtown-based S&T Wealth Management.

PNC purchased BlackRock in 1995 for approximately $240 million, and took it partially public four years later, retaining a 70 percent ownership stake. During that period, BlackRock's assets under management soared from approximately $24 billion to $453 billion, drawing the interest of several big Wall Street names. There were discussions last month, for example, about an alliance with Morgan Stanley, but those talks broke down over price.

The talks with Merrill Lynch go back "the last month or so," according to Mr. Rohr, who said he and BlackRock CEO Larry Fink have known Merrill CEO Stan O'Neal for "years." Mr. Fink, who will remain the CEO of BlackRock, said on CNBC that he had conversations with "many" companies over the past year.

While PNC could gain several billion dollars by selling its remaining stake in BlackRock, Mr. Rohr suggested that such a scenario was unlikely, at least in the near term. "I like the diversity of income and this is a rapidly growing company which has terrific growth opportunities," he said. But, Mr. Rohr has also learned to "never say never."

Pressed to explain how he will use the gains from the BlackRock-Merrill Lynch transaction, Mr. Rohr said he would be careful about evaluating acquisition opportunities.

"We just have to be disciplined," he said. "The fact that we have this capital should not change our criteria for being a disciplined acquirer. A lot of things look pretty expensive and we just have to be careful that way,"

The deal will have no impact on PNC's Pittsburgh-area operations, Mr. Rohr said.

But a few observers believe that Merrill Lynch might have an interest in buying PNC eventually, noting that the Wall Street giant has expressed an interest in buying a commercial bank. While PNC would be an expensive buy given the recent rise in its stock price, Merrill Lynch "would be in the driver's seat if they wanted to make that kind of move happen," said Mr. Seibert, of S&T Wealth Management.

Asked about that possibility yesterday in an interview, Mr. Rohr said, "we are not particularly interested in selling the bank. I think we are doing great."