PNC to buy National City in deal creating fifth-largest US bank

WASHINGTON (AFP) - PNC, tapping into a Treasury emergency fund, said Friday it is buying National City in a 5.6 billion-dollar deal to create the nation's fifth largest bank by deposits.

PNC was the first regional bank to announce it had been approved for a capital injection under the Treasury's new 700-billion-dollar Troubled Asset Relief Program (TARP).

Last week the Treasury set a November 14 deadline for banks to apply for a massive financial rescue from the 250 billion dollars available in exchange for equity stakes to help restore credit flows.

Nine large banks including Citigroup, JPMorgan Chase and Goldman Sachs earlier this month agreed to give the government equity stakes in exchange for new capital in the program, the first of its kind since the 1930s Great Depression.

Pittsburgh, Pennsylvania-based PNC said it will issue to the US Treasury 7.7 billion dollars of preferred stock and related warrants under the TARP.

PNC will acquire struggling National City Corporation, based in Cleveland, Ohio, for 2.23 dollars per share, representing about 5.2 billion dollars, the banks said in a joint statement.

An additional 384 million dollars will be paid to certain shareholders of National City, the firms said, without giving further details.

The acquisition of National City, which is heavily exposed to the US mortgage crisis, is expected to close by year-end subject to shareholder and regulatory approval, the firms said.

The acquisition comes amid a rapidly consolidating US banking system under pressure from the credit squeeze.

The new PNC would still lag in size behind the top four banks, most of which recently have swallowed up ailing financial institutions: JPMorgan Chase, which bought Bear Stearns and Washington Mutual; Bank of America (Countrywide and Merrill Lynch); Wells Fargo (Wachovia); and Citigroup.

James Rohr, PNC chairman and chief executive, welcomed his bank's selection for the Treasury's capital purchase program of bank shares under the TARP program, saying it paved the way for the acquisition.

"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," he said in the statement.

"The acquisition of National City will increase our core deposit base to 180 billion dollars, making PNC the fifth-largest US bank by deposits," he said.

A takeover of troubled National City had been the subject of rumors in recent weeks as its shares were pummelled repeatedly, reducing the bank's capitalization to several billion dollars.

Shares in PNC rose 1.13 percent to 57.52 dollars in late New York trade, paring earlier gains, while National Capital plunged 27.64 percent to 1.99 dollars.

The market views that "this transaction makes financial sense," analysts at Stifel Nicolaus wrote in a client note. "PNC has a history of acquiring troubled institutions, and integrates well, and extracts positive operating leverage."

However, credit agency Standard & Poor's placed PNC on its CreditWatch negative.

The large takeover "comes amidst the current credit crisis -- an external operating environment that presents significant challenges for banks' financial performances," S&P analyst John Bartko said.

"The transaction materially increases PNC's exposure to residential mortgage-related loans in some of the weaker banking markets in the Midwest and Florida," he added.

National City reported last week a quarterly loss of more than five billion dollars as bad loans increased fourfold.

PNC CEO Rohr downplayed the potential risks.

"National City has already identified assets they're liquidating. We need to continue to reduce risks," he said in a conference call.