A major consolidation of U.S. financial institutions picked up steam as a deal was reached for National City Corp. to be acquired by The PNC Financial Services Group Inc. The acquisition is effectively being financed by U.S. taxpayers under the U.S. Treasury’s direct investment in domestic banks.
The two companies announced today that PNC has agreed to buy the Cleveland-based bank for around $5.2 billion in stock. Both boards of directors have approved the transaction.
The deal is expected to close by Dec. 31.
Other recent major acquisitions include Bank of America Corp.’s acquisition of Countrywide Financial Corp., JPMorgan Chase & Co.’s acquisition of Bear Stearns & Co. and purchase of Washington Mutual Bank and MetLife Bank N.A.’s purchase of most of First Horizon National Corp.’s mortgage operations. In addition, Wells Fargo & Co. has agreed to acquire Wachovia Corp. while BoA has agreed to acquire Merrill Lynch & Co.
PNC said it plans to issue $7.7 billion in preferred stock and related warrants to the U.S. Treasury under the capital purchase provision of the Troubled Asset Relief Program.
With the acquisition, PNC will have $180 billion in core deposits — making it the fifth biggest U.S. bank, the statement said.
Costs associated with the merger and integration will total around $2.3 billion, though $1.2 billion in noninterest expense is expected to be eliminated.
“The transaction has an estimated internal rate of return to PNC of more than 15 percent and is expected to be accretive to PNC’s earnings in the second year,” the announcement said. “PNC’s fair-value adjustments and provisions for future losses of National City’s current loan portfolio will bring the cumulative impairment of these loans to approximately 17.5 percent. PNC will continue to liquidate non- core and impaired loans.”
National City Chairman, President and Chief Executive Officer will become vice chairman of the merged company, which will be based in Pittsburgh. In addition, one National City director will join the board of the combined institution, which will operate under the PNC brand.
National City reported a $1.1 billion third-quarter loss, while net income at PNC was a $0.2 billion profit during the same period. Employee count at National City was 29,828 at the end of the quarter, and PNC employed 28,129 people.
National City’s residential portfolio loans were $18.0 billion on Sept. 30, while home-equity loan holdings were $25.7 billion and commercial mortgage loans ended the period at $15.0 billion. PNC owned $8.8 billion in residential mortgages, $14.9 billion in home-equity loans and $9.7 billion in commercial real estate loans as of Sept. 30.
National City originated $3.6 billion in residential loans during the third quarter, tumbling from $5.3 billion in the second quarter and $11.8 billion in the third-quarter 2007. Its residential portfolio of loans serviced for third parties was 1.1 million loans for $175.3 billion as of Sept. 30.
PNC sold its residential lending business to bankrupt Washington Mutual Inc. early in the decade. The company, however, is parent to Midland Loan Services Inc. — the biggest servicer of commercial mortgages for Fannie Mae and Freddie Mac. PNC’s total commercial mortgage servicing portfolio stands at $248 billion.