PNC Financial Services Group yesterday took troubled National City Corp. off the regulatory critical list, agreeing to buy the ailing Cleveland bank in a $5.6 billion transaction made possible by $7.7 billion in federal assistance.

The announcement caps months of speculation over the fate of a Cleveland bank racked by problem loans and untimely acquisitions. It will make PNC the nation's fifth-largest banking company, giving it a dominance in Western Pennsylvania and other markets that some believe could raise antitrust concerns.

National City shareholders will receive $5.2 billion in PNC stock, or 0.04 PNC shares for each share they own. The terms value National City shares at $2.23 per share versus Thursday's closing price of $2.75.

In addition, certain National City warrant holders will receive $384 million in cash.

The 19 percent discount to market price indicates National City assessed its chances of riding out the credit crisis that has shaken the confidence of its customers and decided it was time to find a buyer, said Matthew W. Schultheis of Boenning & Scattergood, a West Conshohocken, Pa., brokerage.

PNC Chairman and Chief Executive Officer James E. Rohr said the bank has held on-and-off discussions with National City for about nine months. The latest round began Oct. 5 and ended up with National City selecting PNC's offer Thursday night from an undisclosed number of bids, Mr. Rohr said.

"We thought we were a great fit for a long time," he said in an interview.

The acquisition, expected to be completed by year end, will give PNC $180 billion in deposits and 2,747 branches from New Jersey to Illinois as well as Florida. Based on deposits, PNC will be the biggest bank in Pennsylvania, Ohio and Kentucky and hold the No. 2 position in Maryland and Indiana.

Given that footprint, $5.6 billion is not "a whole lot of money," Mr. Schultheis said.

PNC will control nearly 53 percent of deposits in Western Pennsylvania, according to Bart Narter of Celent, a Boston financial research and consulting firm. That's nearly double the 27 percent share of the San Francisco market created by Wells Fargo's purchase of Wachovia, he said.

"I would imagine somebody's going to look at that and say we've got a problem," Mr. Narter said. "I've not seen a market concentration of 38 percent anywhere let alone 53. That's pricing power."

The acquisition must be approved by PNC and National City shareholders as well as regulators, including the U.S. Justice Department, which reviews antitrust concerns.

Mr. Rohr said PNC may be required to sell some branches in Western Pennsylvania. He expects the bank will have to divest operations accounting for less than 3 or 4 percent of deposits.

"We'll have a period of time to deal with that," he said.

Antitrust concerns would be more of an issue if federal regulators did not have to worry about the damage toxic loan portfolios were doing to banks and the doubts those problems were creating among jittery depositors, Mr. Schultheis said.

"I think the justice Department on most deals is going to look the other way," he said.

As part of the transaction, PNC will sell $7.7 billion of preferred stock and warrants to the U.S. Treasury under the $700 billion Troubled Asset Relief Program approved by Congress, allowing PNC to improve its capital position.

PNC will have to repurchase the preferred shares within 10 years and pay the Treasury a 5 percent dividend in the first five years and 9 percent after that.

"It's a really attractive source of financing," Mr. Rohr said.

He expects PNC will be able to redeem the shares within five years. He also said it is possible PNC will sell up to $1 billion in stock sometime in the future to strengthen its balance sheet. Other banks, including National City, have done the same thing.

"In this environment, with the risk out there, sometimes you may want to have more capital," Mr. Rohr said.

Congress put some restrictions on executive compensation for institutions that take advantage of the relief bill, prohibiting incentives that "encourage unnecessary and excessive risks." The law also bans golden parachutes to departing executives and requires them to return bonuses paid based on faulty accounting.

The legislation also reduced the amount of compensation companies can deduct for tax purposes to $500,000 from $1 million per executive and includes performance-based pay in that calculation. Sarah Anderson of the Institute for Policy Studies said that while the tax provision sets an importance precedent, "no companies are going to decide not to participate in the bailout program because of that."

PNC said it expected to incur merger and integration costs of $2.3 billion but estimated the merger would generate annual savings of $1.2 billion. National City's operations will contribute to PNC's profits in the second year following the purchase, the bank said.

PNC shares closed yesterday at $58.88, up $2. National City fell 68 cents to close at $2.07.

The acquisition will be PNC's fourth in the past 18 months. The bank purchased Lancaster-based Sterling Financial Corp. for $565 million, Yardville National Bancorp. of Hamilton, N.J., for $403 million and paid $6 billion for Mercantile Bankshares of Baltimore. In 2005, it paid $652 million for Riggs Banks, a Washington, D.C., institution plagued by a money laundering scandal.

"While every merger has integration risks, PNC's track record with previous acquisitions has been solid," Fitch Ratings said.

The credit rating agency said the merger is positive for National City creditors and affirmed its ratings on PNC's debt.

Mr. Schultheis said PNC has done a good job with mergers, but the size of National City "does expose them to some risk."

"In Michigan and in Cleveland, the markets are clearly not doing well, and I wouldn't expect to see a turnaround anytime soon," he said.