12 February, 2011

United States Bank Mergers (PNC Financial Services Group)

Photo: Following the sale of National City to PNC Financial in 2008, the former NatCity branch in Norwalk, Ohio, is now a PNC branch.

The PNC Financial Services Group, Inc.

National City Corporation

In 1845, two executives from the Fireman’s Insurance Co. founded the City Bank of Cleveland. The new bank quickly gained prominence in the city by issuing secured paper banknotes, offering deposit accounts to safely store cash and loans to businesses. Two years after the passing of the National Banking Act of 1863, City Bank of Cleveland converted to a national charter and renamed itself National City Bank of Cleveland.

As one of the inland port cities in the Great Lakes, Cleveland became a major commercial and transportation hub, and National City Bank also prospered. The bank operated on conservative principles, which helped it weather the Panic of 1893, when hundreds of American banks failed.

Like America itself, National City fared well well into the 1920s, until another asset bubble burst led to the infamous Stock Market Crash and the ensuing Great Depression. Despite that, the bank’s cautious management once again steered the bank through the challenges and came out relatively unscathed.

Following the end of the World War II, America enjoyed decades of boom while much of Europe and Asia rebuilt from its ruins. National City launched new products and services. In 1959, a computer system was installed to link its branches together. Still, by 1960, the bank remained largely just a Cleveland city bank with 24 branches. Between 1974 and 1984, the bank acquired a number of small Ohio banks such that by 1980, it operated a network of 111 branches.

National City broke out of its relative confinement in the Cleveland area in 1984, when it took over Columbus-based BancOhio Corp. (BancOhio National Bank) for USD $310-million. The purchase gave National City a major foothold in Ohio’s state capital and made it the No. 1 bank in the state. When the ban on inter-state banking was lifted in the late 1980s, National City made its first out-of-state expansion in 1988 by buying First Kentucky National Corp. for USD $660-million.

The 1990s saw a massive wave of bank consolidations in the U.S. In 1991, National City engaged in a bidding war for Cleveland rival Ameritrust Corp. In the end, National City’s USD $860-million offer was trumped by Society Corp.’s (present-day KeyCorp) USD $1.2-billion offer. The rebuffed National City quickly turned its attention to other opportunities and took over Merchants National Corp. of Indianapolis in the same year.

Following a few small acquisitions in Indiana and Kentucky, National City made a major move into the Pennsylvania market in 1995 by buying Pittsburgh’s Integra Financial Corp. for USD $2.1-billion. Integra operated 260 branches in western Pennsylvania.

By 1997, National City was emerging as a regional powerhouse in the Midwest with 750 branches. In the same year, the bank bought Sterling Ltd., an Ohio wealth management firm. The buying frenzy continued in 1998 when the bank bought the First of America Bank Corporation of Kalamazoo, Michigan, for USD $6.7-billion and Fort Wayne National Corp. of Indianapolis for USD $800-million. The bank closed out the decade by buying California-based subprime (i.e. high-risk) mortgage lender First Franklin Financial from Bank of America in 1999 for USD $266-million. This purchase would turn out deadly for National City a decade later.

After a few years of digesting its earlier acquisitions, National City in 2003 took over Missouri’s Allegiant Bancorp for USD $475 million, obtaining 37 branches in the St. Louis area. One year later, the bank bought Cincinnati-based Provident Financial Group for USD $2.1 billion.

By 2006, the decade-long real estate bubble that had been fuelled by super-low interest rates, loose lending practices and just plain old “herd mentality,” was starting to leak air. As mortgage default rates began to creep up, National City sold its subprime mortgage lender First Franklin to Merrill Lynch for USD $1.3-billion, though the bank had to keep USD $10-billion of the riskiest mortgage assets that Merrill refused to take on. Buying First Franklin turned out to be a big mistake for Merrill, which shut down the lender merely two years later after a multi-billion dollar write-off.

Ironically, at the same time that National City sold First Franklin, it bought two new banks in Florida: Fidelity Bankshares for USD $1-billion and Harbor Florida Bancshares for USD $1.1-billion. Even as late as 2007, the bank bought MAF Bancorp (MidAmeria Bank) for USD $1.9-billion. MidAmerica had 82 branches in Chicago and Milwaukee areas.

Soon after, in early 2008, the global credit bubble burst and banks around the world suffered billions of dollars of losses from bad mortgage and consumer loans. Investment bank Bear Stearns collapsed in March 2008 and was sold to JPMorgan Chase. When panicky institutional investors withdrew from the short-term money market, banks around the world became short of the capital needed to keep their business going. Citigroup, Wachovia, Washington Mutual, Fannie Mae, Freddie Mac, HBOS and Fortis were just a few of a long list of lenders that would have gone bankrupt without emergency state aid. It was clear that National City would not survive without the backing of a healthier bank, and it agreed to a buyout offer from PNC Financial in October 2008.

PNC Financial Services Group

In 1852, the Pittsburgh Trust and Savings Co. opened for business, making it the oldest bank in the city. Following the passing of the National Banking Act of 1863, the bank promptly applied for a national charter and renamed itself the First National Bank of Pittsburgh.

In 1946, First National of Pittsburgh merged with Peoples-Pittsburgh Trust Co. to form Peoples First National Bank & Trust Co. In 1959, Peoples First merged with Fidelity Trust Co. and adopted the name Pittsburgh National Bank.

Meanwhile, a number of Quaker merchants founded the Provident Life and Trust Co. in 1865 to provide life insurance and banking services. Provident Life and Trust was often dubbed the “Quaker Bank.” In 1922, the company was split into the Provident Mutual Life Insurance Co. and the Provident Trust Co. In 1957, the Provident Trust Co. of Philadelphia acquired the Provident Tradesmen’s Bank and Trust Co. to form the Provident National Bank.

It was only in 1982 that the legislative ban on state-wide banking in Pennsylvania was abolished, and Pittsburgh National Bank and Provident National Bank became the first two in the state to merge, forming the PNC Financial Corp. In 1984, PNC bought Northeastern Bancorp for about USD $100-million. As the 1980s progressed, further legislative reforms made inter-state banking legal, and PNC acquired Louisville, Kentucky-based Citizens Fidelity Corp. for USD $700-million in 1986. In 1987, the bank bought the Central Bancorporation of Cincinnati. Just one year later, PNC acquired the Bank of Delaware Corp. for USD $230-million. Though still sporadic outside of Pennsylvania, PNC by this time was already building a network in the Midwest and along the Eastern Seaboard.

Recent transaction(s):

  • Between 1991 and 1995, PNC made a series of small acquisitions to expand its operations in its hometowns of Pittsburgh and Philadelphia, as well as in northern Kentucky, northern Pennsylvania and the Cincinnati area.
  • In 1993, PNC acquired The Massachusetts Company from the Travelers Group for USD $52-million. Founded in 1818, The Massachusetts Co. offered trust and pension services and had a small branch network.
  • Also in 1993, PNC acquired Sears Mortgage from department store Sears, Roebuck & Co. for USD $329-million.
  • In 1994, PNC bought BlackRock Financial Management for USD $240-million. BlackRock specialized in fixed-income asset management. In 1999, PNC floated 30% of BlackRock on the stock market.
  • In 1995, PNC bought Midlantic Corp. for USD $3.0-billion, entering the southern New Jersey market for the first time and strengthening its presence in Philadelphia.
  • Also in 1995, PNC acquired 84 branches in southern New Jersey from Chemical Banking Corp. for USD $504-million.
  • In 1998, PNC bought stock broker Hilliard Lyons for USD $275-million.
  • Also in 1998, PNC sold its credit-card portfolio with USD $2.9-billion in receivables to MBNA Bank for USD $3.343-billion.
  • In 1999, PNC acquired the mutual fund processing services unit of First Data Corp. for USD $1.1-billion.
  • In 2000, PNC sold its residential mortgage portfolio to Washington Mutual Inc. for USD $605-million.
  • In 2003, PNC bought United National Bancorp for USD $638-million. United National operated 52 branches in central New Jersey and eastern Pennsylvania.
  • In 2004, PNC bought Riggs National Corp. for USD $779-million.
  • In 2006, BlackRock exchanged a 49.8% stake of itself for Merrill Lynch & Co., Inc.'s investment management business. PNC Financia’s 70% stake in BlackRock was diluted to 34%.
  • Also in 2006, PNC bought Mercantile Bancshares Corp. for USD $6.0-billion. Mercantile Bank operated 240 branches in the Washington D.C., Maryland, Delaware, Virginia and south-eastern Pennsylvania areas.
  • In 2007, PNC bought Lancaster, Pennsylvania-based Sterling Financial for USD $565-million. Sterling Financial had 67 branches in Pennsylvania, Maryland and Delaware under five banking subsidiaries.
  • Also in 2007, PNC bought Hamilton, New Jersey-based Yardville National Bancorp for USD $403-million. Yardville National operated 33 branches in New Jersey and Pennsylvania.
  • On 2008-10-24, PNC Financial Services bought National City Corp. for USD $5.2-billion in stock plus USD $384-million in cash to certain warrant holders. The deal valued each National City share at USD $2.23. Just a few years earlier, National City traded at over $30 per share. PNC also announced that it would obtain USD $7.7-billion in state aid (TARP fund) from the U.S. Treasury. National City had 1,300 offices and 2,100 ATMs in Ohio, Florida, Illinois, Kentucky, Indiana, Missouri, Michigan and Pennsylvania. The enlarged PNC would have 2,750 branches but branch closures were expected.
  • In 2008, as part of the sale of Merrill Lynch to Bank of America, Merrill’s 48.5% stake in BlackRock was restructured. The change of ownership of Merrill triggered a clause in BlackRock’s shareholder agreement that allows BlackRock to reduce Merrill’s voting control of BlackRock. Merrill Lynch, BlackRock and BlackRock’s other major shareholder PNC would exchange common stock into preferred stock. Following the exchange, Merrill’s voting stake in BlackRock fell from 48.5% to 4.9%; whereas PNC’s voting control in BlackRock rose from 36.5% to 47%.
  • In June 2009, BlackRock, an associated company of PNC and Bank of America, agrees to buy San Francisco-based Barclays Global Investors from Barclays plc for USD $13.5-billion (GBP 8.2-billion). BlackRock would pay USD $6.6-billion in cash and issue USD $6.9-billion of new stock to Barclays plc. Barclays ended up with a 19.9% economic interest in the newly-named BlackRock Global Investors, but only a 4.9% voting stake. Bank of America, through its 2008 purchase of Merrill Lynch, saw its economic holding in BlackRock fall to 34.2% from 47%, while PNC’s economic stake was diluted to 24.6% from 32%. The new BlackRock had USD $2.7-trillion of assets under management.
  • In 2010, PNC sold PNC Global Investment Servicing the Bank of New York Mellon for USD $2.31-billion in cash. The unit sold provided back-office data and accounting processing for financial advisers, fund managers and brokers. PNC Global Investment Servicing had USD $855-billion in assets under administration. PNC planned to repay the USD $7.7-billion in government bailout fund to the U.S. Treasury. PNC would finance the rest of the repayment from a USD $4.5-billion to $5-billion common share and senior notes sale.
  • In June 2011, PNC agreed to buy RBC Bank USA and its credit-card potfolio from Royal Bank of Canada for USD $3.615-billion (CAD $3.54-billion). The purchase included 424 branches in North and South Carolinas, Florida, Alabama, Georgia and Virginia. RBC Bank USA had USD $19-billion of deposits and USD $16-billion of loans. The purchase would turn PNC into the No. 5 bank in the U.S. based on deposits.
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