PNC to buy National City

Pittsburgh-based PNC to acquire struggling regional bank for $5.6 billion and will get government capital injection; bank stocks still get crushed Friday

By David Ellis, CNNMoney.com staff writer

Last Updated: October 24, 2008: 4:21 PM ET

NEW YORK (CNNMoney.com) -- PNC announced Friday it would acquire regional bank National City in a deal worth about $5.6 billion.

The sale, which values National City at $2.23 per share, would create the nation's fifth-largest U.S. bank with $180 billion in deposits. PNC is exchanging $5.2 billion in stock and paying an additional $384 million in cash for National City.

"We believe this strategic combination will continue PNC's efforts to build capital strength and shareholder value," said James Rohr, PNC's chairman and CEO in a statement.

Making the announcement before Friday's opening bell, PNC said it would also get a capital injection from the government by selling $7.7 billion worth of preferred stock and related warrants as part of a federal program aimed at propping up the nation's banking system.

"We are pleased the Treasury selected us," Rohr said in a conference call with investors, adding that it won government approval late Thursday.

The two firms said the combined company would be headquartered in PNC's hometown of Pittsburgh, while the merger would broaden PNC's footprint in other key parts of the upper Midwest such as Indiana, Michigan and National City's home state of Ohio.

The deal, which is expected to close by year end, concludes what has been a painful period for National City.

Shares of Cleveland-based National City have been hit hard over the past year as investors speculated about the bank's health due to its exposure to the deteriorating U.S. mortgage market.

That was apparent as recently as this week when National City reported a $729 million third-quarter loss and detailed plans to eliminate 4,000 positions, or 14% of its workforce, over the next three years.

As a result of the merger, PNC said Friday that it estimated it will write downnearly 18% of National City's loan portfolio going forward. That's significantly larger than the loss forecasts that National City executives provided just days earlier.