PNC to Buy National City Corp.

PNC Financial Services Group, a large regional bank with a major presence in the Washington area, said today it is buying National City, a struggling Cleveland-based bank, to create the fifth-largest bank in the country by deposits.

PNC also said it was going to receive a $7.7 billion capital injection from the U.S. Treasury, the 10th bank to do so, making PNC the first bank to explicitly turn to the Treasury program to support an acquisition. Several banks have indicated this week they plan to use the Treasury's money to buy weaker banks.

The deal comes after several mega-mergers over the past two months have saved several banks, including Washington Mutual and Wachovia.

PNC said it was paying $5.2 billion in stock for National City, or $2.23 per National City share. National City was trading at $2.07 this morning, down 25 percent from yesterday's close. PNC shares were trading at $58.05, up 2.06 percent. PNC said it would also pay $384 million in cash to a select class of investors who hold warrants in National City.

PNC has been relatively untouched by the mortgage crisis. But the meltdown has caused deep losses for National City, which was widely considered the weakest remaining bank after the acquisition of Wachovia by Wells Fargo and Washington Mutual by J.P. Morgan.

PNC will become the second-largest bank in Maryland, and the biggest in Pennsylvania, Ohio and Kentucky. It will be the third-largest in the District.

PNC said National City would bring its total amount of deposits to $180 billion, bigger than all but four other U.S. banks: Bank of America, Wells Fargo, J.P. Morgan and Citigroup.

"We see our deposit strength as an important success factor," James E. Rohr, chairman and chief executive of PNC, said in a statement. "We believe this strategic combination will continue PNC's efforts to build capital strength and shareholder value. We are also gratified that we have been selected to participate in Treasury's Capital Purchase Program, which has helped to put this transaction on a very solid footing."

"This transaction is about two companies that fit well together in terms of geography, products and services," said Peter E. Raskind, chairman, president and chief executive of National City, who will become PNC's vice chairman.

PNC said it could book $19.9 billion in losses on National City's loan portfolio over time. It expects the transaction to start to add to earnings in 2010.

PNC said it will incur merger expenses of $2.3 billion.

The transaction should close by year-end.