PNC Deal for Nat City Could Set Trend

PNC Financial Services' (PNC) acquisition of struggling National City (NCC) could mark the first in another run of deals for regional banks.

PNC on Friday said it agreed to buy National City for $5.6 billion in cash and stock, after receiving a $7.7 billion preferred equity investment from the federal government. With almost two dozen other regional banks expected to also receive government investments, the money will be there to make deals.

"I expect more consolidation," says Roger Cominsky, a partner in Hiscock & Barclay's financial institutions and lending practice area. "The Treasury is using the $250 billion to prop up the capital of the surviving banks. Those banks are going to be under immense pressure to acquire the sick, but not dead banks."

Additionally, the Federal Deposit Insurance Corp. "has a vested interest in seeing more consolidation because that lessens the risk of the insurance fund," Cominsky adds. "So you will probably see more consolidation over the next few weeks or months."

National City's $180 billion in deposits is essentially off the radar screen for the FDIC, Cominsky says.

Pittsburgh-based PNC agreed to pay $2.23 a share for Nat City and will also pay $384 million in cash to certain warrant holders. National City shareholders will be entitled to 0.0392 share of PNC common stock for each share of the Cleveland-based bank, the companies said.

PNC's government investment comes from the Treasury's $250 billion bank investment initiative under the troubled asset relief program, or TARP.