The U.S. Treasury will take a $7.7 billion stake in PNC Financial Services Group Inc. to facilitate its purchase of troubled Cleveland, Ohio-based National City Corp.
Pittsburgh-based PNC is among the first regional banks to take advantage of the $250 billion the Treasury has earmarked to "recapitalize" banks by buying nonvoting preferred shares under the $700 billion Trouble Asset Repurchase Program, or TARP. Half of the money has already been allocated to nine of the nation’s biggest banks (see Inman News story).
At a hearing Thursday, Senate Banking Committee Chairman Sen. Chris Dodd, D-Conn., told Bush administration officials that he was concerned about reports that banks might use the money to fund acquisitions, rather than boost lending to businesses and consumers (see story).
Another regional bank, Georgia’s SunTrust Banks Inc., has authorized the sale of $1.6 billion to $4.9 billion in preferred shares to the U.S. Treasury, SunTrust officials said in announcing a 25 percent decline in profits driven by losses in mortgage lending.
Mortgage losses were also a drag on National City’s bottom line — the bank announced a $729 million third-quarter loss Tuesday — despite the sale of its subprime lending subsidiary, First Franklin Financial Corp., in 2006. After selling First Frankin, National City tried to expand into Florida, buying two banks in a state that has since become one of the hardest hit by foreclosures during the housing downturn.
National City, which retained $7.3 billion in loans originated by First Franklin, was forced to cut 3,400 jobs in 2007 (see story), and the bank’s future was in doubt.
PNC said its $5.2 billion acquisition of National City is expected to close by the end of the year, making it the fifth-largest U.S. bank by deposits and the fourth-biggest in number of branches. PNC will have the largest share of bank deposits in Pennsylvania, Ohio and Kentucky, and the second largest in Indiana and Maryland.
PNC expects fair value adjustments and provisions for future losses of National City’s current loan portfolio will bring the cumulative losses on the loans to approximately 17.5 percent.
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