Testing the TARP: PNC and NCC

After weeks of speculation as its share price headed toward the floor, Cleveland-based regional bank National City (NCC) goes to PNC Financial Services (PNC).

The deal creates the country's fifth-largest bank by deposits.

The deal:
PNC will pay $5.58 billion in stock and cash for National City and get $7.7 billion through the government's bailout plan. The deal values National City at about $2.23 a share, or about 19 percent below yesterday's closing price (it traded around $23 a year ago). PNC says its Tier 1 capital ration will be about 10 percent, and the combined firm will be well above regulatory standards for a "well-capitalized" bank.

Why this is good:
A couple of reasons: First, National City was probably the biggest regional at risk as the credit crisis spreads. Second, the use of the Troubled Asset Relief Program (TARP) funds is encouraging. It's a positive sign that banks are using the government's lending offer to get markets moving again.

And lastly, a quick note to National City's press team, who just yesterday chided me for saying that the bank was up for sale: We won't be running that correction.

Comments

[Rudy Mcpherson:]

What happens to NCC stock value? Does it go to zero like Washington Mutual once the merger is complete? Since NCC was bought out does it mean NCC is in a good position now since they won't go under like LEH etc? Should I sell?

2008 Oct 24 02:58 PM

[Jas1:]

Each NCC share will be exchanged for 0.0392 PNC shares. This deal is subject to shareholder approval.

2008 Oct 24 03:28 PM

[Keep the US...:]

I urge all National City Corp (NCC) shareholders to REJECT the merger with PNC Financial Services Group Inc! We should instead demand stand alone participation in the government’s buyout.

In essence, the Government of the USA is forcing us as shareholders into a loss, so that they may gain as Preferred shareholders. No thank you.

2008 Oct 24 04:44 PM

[sailllex:]

this is a classic example of the insiders remaining and receiving sweetheart contracts while the shareholders take it on the chin

2008 Oct 24 05:11 PM

[Big Al45:]

I wonder how much the NCC executives will make from their golden parachutes.

TARP's alleged prohibition on golden parachutes only applies to banks that take government money (in this case PNC) but not to the banks that they acquire.

I wonder any of the $250 Billion that the taxpayers are funding wil actually be used to make loans. Looks like Hammerin Hank has turned Treasury into the largest M&A shop in America - just like the good old days at Goldman Suchs.

2008 Oct 24 08:57 PM

[kevinm:]

NCC was a $3 stock BEFORE the deal. So enough of the conspiracy theories and blame game!

NCC shareholders will have a much better chance of recouping some of their losses via PNC stock than they would have independently. If you rode it all the way down and were still holding it at $3 blame yourself, and no one else!

2008 Oct 24 11:31 PM

[mik123:]

I haven't seen any of the TARP money go to a bank that really needs it. As a taxpayer I would be furious if this money goes to banks that don't need it. Why is Goldman Sachs getting 10 billion of the rescue money when they have nothing to rescue. They have no bank deposits or problem loans this rescue plan was designed to help. I hope it's not because Treasury secretary Paulson was their former chairman. Morgan Stanley is identical to Goldman and is getting 10 billion. Wells Fargo certainly didn't need the money acquiring Wachovia and their chairman Kovacevich was furious with Paulson for forcing them to take it. The Feds plans on injecting 250 billion into banks that don't need the money with the exception of Citigroup. If they would not give it to National City, that's a huge injustice since there giving 25 billion to Citigroup which has many times the amount of loses and only double the U S deposits. Wells Fargo, J P Morgan,and Bankamerica did not in the past and still don't need Fed money. After National City, I can't find one large bank that's projected to have a loss next year based on all analysts expectations. After the top 25 banks,their size drops dramatically with less than 25 billion in deposits. Go to Smartmoney.com and plug in the ticker symbols and go to earnings projections. Even Citigroup is projected to earn 7-8 billion next year. Fifth Third and Keycorp are expected to have excellent earnings next year according to the analysts who follow the company(find this in Smartmoney.com) The only banks that I see that could use the help today to get them over the hump is Citigroup and National City. The Fed only needs to use 35 billion (25 to Citigroup and 10 to National City). By all analysts estimates, National City would lose $.34 per share next year which equates to apx 700 million. That's not that bad. People forget they earned 350 million for the period ending 6/07. They could very easily get back to earning $1.28 a share in 2010 which would take the stock to a minimum of $12.80 a share assuming a conservative P E of 10. PNC is getting National City at no cost and is actually making 2 billion because of the 7 billion tax benefit on Nat Citys well publicized 19 billion problem loans. From what I read, 25% of this has been reserved for. My biggest question is why did the Government have this 700 billion rescue plan and not immediately give 25 billion to Citigroup and 10 billion to National City. Out of all banks with 25 billion or more of deposits, which by the way is the top 35 banks in the U S , only 2 or 3 really needed the money. If they refused to rescue National City, then as a taxpayer I would demand they cancel the 700 billion rescue plan. All this is doing is making the shareholders of the selected companys rich. Wells Fargo is almost unchanged for October while the Dow is off 35% because of the sweatheart deal with Wachovia. In case you missed that deal, Wachovia agreed to a bid by Citigroup of $1 a share earlier this month. Three days later Wells came out of nowhere and offered $7 a share which was accepted. In another deal Bear Stearns agreed to a $2 a share bid by J P Morgan until shareholders objected and the bid was upped to $10. The National City deal is the first deal since the government announced capital injections to banks, the ability to writeoff bad loans upfront instead of spreading over many years, and relaxed accounting rules regarding asset values on balance sheets. These are all big game changers in National Citys favor of staying independent. At $2 a share and with all the government rescue plans, theres a 0% chance of failure. If they did after all of these plans, the government would look like a bunch of dummies and should all be fired. If the Fed is so interested in making loans, let people go direct with them. Starting this year , most student loans are direct with the Federal Government. This week corporations can start doing the same in the short term loans. Do the same with consumers but pay the banks to process the paperwork. They Feds don't have the manpower for consumers. So don't pass out a 250 gift if your not going to help the banks that need it. All the weak banks with the exception of 2-3 have already merged before any the rescue plans were approved.

2008 Oct 25 10:08 AM

[vodop09798:]

Relax. There's no way the shareholders will put up with
this attempted ripoff.

2008 Oct 25 11:12 AM

[fatcat:]

Most all banks are busted...look at what Wachovia reported,only because they don't have to lie anymore....all are in the same boat...

2008 Oct 26 04:04 AM

[1worldcurrency:]

From the garbage above: "Second, the use of the Troubled Asset Relief Program (TARP) funds is encouraging. It's a positive sign that banks are using the government's lending offer to get markets moving again."

What kind of bullshit is this? Even if that were a good thing, where is the evidence? All I see is Paulson working deals that benefit some private parties with none of the promised Congressional oversight. That and PNC apparently getting a huge tax break from NCC's losses. Someone has to pay for every god damned tax break that anyone gets.

2008 Oct 27 12:49 AM

[boystock:]

I will suggest NCC shareholder to reject this deal. Most of you have purchase way above $2.23 per share, within six months, when all loss are declared and balance are tally and right figures are shown on balance sheet after year end for 2008; stock would be appreciate at better price. This is game played by NCC CEO and PNC trying to scare stock holder making them be believe something is better then nothing, those who were in real deep trouble they have already close there shop. This is time to wait especially, when Gov has step-up for help NCC can take opportunity to fix it. This game played by Mr. Peter E. Raskind and PNC so before actual year end they can merge two banks and much cheaper deal then it is actual worth.

2008 Nov 05 09:02 PM