National City Finally Finds Suitor

October 24, 2008 No Comments »

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It took a while, but the future of struggling Midwestern bank and mortgage lender National City is now clear.

PNC Bank has agreed to buy National City for $2.23 per share, or roughly $5.2 billion in PNC stock, or 0.0392 shares of PNC stock for every share of National City’s, per a company press release.

The price is a big discount to Thursday’s closing price, mirroring deals like the Bank of America Countrywide merger and the Chase’s buyout of Bear Stearns.

As part of the deal, PNC plans to issue $7.7 billion in preferred stock to the U.S. Treasury under the TARP Capital Purchase Program in order to keep its Tier 1 capital ratio at acceptable levels.

The synergy of the two companies will create the fifth largest bank in the United States by deposits, with a combined total of $180 billion, and the fourth largest in terms of branches.

PNC said it plans to continue Nat City’s efforts to liquidate “non-core and impaired loans,” otherwise known as their Exit Portfolio, which contains about $21 billion in bad mortgages.

It’s unclear if National City will suffer anymore layoffs, considering they just announced 4,000 new cuts last week.

There had been speculation for months regarding a National City takeover or even a collapse, with potential suitors ranging from heavyweights Wells Fargo and Chase to cross-town rivals KeyCorp.

The merger, which should cost roughly $2.3 billion, is expected to close by year-end.

Shares of National City were off 50 cents, or 18.18%, to $2.25, while PNC edged up $3.11, or 5.47%, to $59.99 in late morning trading on Wall Street.

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