Capital Markets

PNC Taps TARP to Buy National City

The bank will sell the government $7.7 billion in stock so it can afford the $5.2 billion acquisition.
Stephen TaubOctober 24, 2008

The PNC Financial Services Group said Friday that it will buy National City Corp. for $5.2 billion in an all-stock deal that will make it the fifth-largest U.S. bank by deposits. An additional $384 million in cash will be paid to warrant holders, bringing the deal’s total value close to $5.6 billion.

And so another struggling bank has been bailed out — in part by the free market, but the federal government’s new Troubled Assets Relief Program (TARP) will also play a significant role in the deal.

PNC plans to issue to the U.S. Treasury $7.7 billion of preferred stock and related warrants under the TARP Capital Purchase Program. PNC said Treasury’s approval of PNC’s participation enables the bank to further strengthen its capital position. It will result in an estimated pro forma Tier 1 capital ratio of approximately 10 percent for the combined company.

“We see our deposit strength as an important success factor,” said PNC chairman and CEO James Rohr. “We are also gratified that we have been selected to participate in Treasury’s Capital Purchase Program, which has helped to put this transaction on a very solid footing.”

To underscore the unusual nature of bank deals these days, PNC is shelling out just $2.23 per share, which is 19 percent lower than National City’s closing price of $2.75 on Thursday.

The transaction is expected to close by year-end.

National City is a large regional bank that made loans to both businesses and individuals. But like Washington Mutual and other banks that fell apart, it was mostly hurt by the mortgage meltdown. Earlier in the week, National City reported a $729 million quarterly loss. On Tuesday, chief executive Peter Raskind told Reuters the economic environment “probably gets worse before it gets better.”

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