PNC Financial Services Group Inc's taxpayer-backed US$5.2 billion purchase of National City Corp is a blueprint for regional bank takeovers pressed for by US Treasury Secretary Henry Paulson, investors said.
PNC, led by Chief Executive Officer James Rohr, becomes the fifth-largest US bank by deposits with its fourth acquisition in less than two years. Pittsburgh-based PNC announced the deal on Saturday after getting US$7.7 billion in government funds, part of the US$125 billion the Treasury doling out to regional banks to thaw frozen credit markets.
"It's going to start to become the template," said Michael Yoshikami, president of YCMNet Advisers in Walnut Creek, California, which manages US$1 billion.
Recapitalize
Paulson has already handed US$125 billion to nine of the largest US lenders, and says the remaining money can recapitalize ailing banks, fund takeovers and benefit the economy, Bloomberg News reported. The Treasury may also take stakes in insurance firms, an insider said yesterday.
Rohr, 60, began combing through Cleveland-based National City's books "months ago," he said. The all-stock purchase of National City is on "solid footing" because of the Treasury funding, the bank said yesterday. Buying National City with stock instead of cash means PNC can use the government funds to boost Tier 1 capital ratio, measuring the ability to absorb losses, from 8.2 as of September 30.
Rohr is taking advantage of a weaker rival to expand his reach into the Midwestern US. The deal will bring PNC to more than 2,500 branches in 13 states and Washington DC.
"Speed is of the essence now," said Roger Cominsky, a partner at law firm Hiscock & Barclay in Buffalo, New York. "Everybody has a target on their back. A suitor one day can be a target the next day."
PNC expects about US$20 billion in losses from National City's lending portfolios, or almost 18 percent of the total. It anticipates US$2.3 billion in merger-related charges and will cut US$1.2 billion in costs in the combined bank.
Treasury funds
A total of 22 banks, including Capital One Financial Corp and SunTrust Banks Inc, will get Treasury funds, the Wall Street Journal reported yesterday.
Barry Koling, a spokesman for SunTrust, said on Saturday that his bank "perceives the current environment is one of opportunity for strong banks like SunTrust," while saying the bank had no further announcement on whether it plans to participate in the Treasury program.
Regions Financial Corp and First Horizon National Corp, the biggest banks in Alabama and Tennessee, respectively, said they had won preliminary approval to receive capital from the Treasury. Regions is selling US$3.5 billion in preferred stock and warrants and First Horizon is slated for an US$866 million injection, the companies said.
Lenders such as US Bancorp said last week that they may be interested in taking over ailing rivals.
Richard Davis, CEO of the Minneapolis-based bank, is "more active and more interested than we might have been before," he said on a conference call last week to discuss USB's 47 percent decline in third-quarter net profit.