The $5.6 billion dealhurriedly arranged at the government's urginglikely won't mean big changes for customers and employees of the bank in Indianapolis. But it does raise questions about the government's growing involvement in banking and marks the end of an era for National City Corp.a bank founded in 1845 that survived the Great Depression and is credited with writing the first mortgage in the United States.
"It's just sad," said Randy Wilson, a retired banking attorney who helped orchestrate the sale of locally based Merchants National Bank to National City in 1991. "It's sad a proud bank like National City ended up in the situation they're in."
The Cleveland-based bank was a gold standard for years, but fell into the trap of subprime mortgages. On Oct. 21, just three days before National City revealed the deal with PNC, it reported a $789 million quarterly lossthe bank's fifth in a rowand announced plans to lay off more than 4,000 employees.
Many banking observers are uncomfortable with the way the U.S. government determined the fate of National City. It excluded the bank from its $750 billion rescue plan while offering large cash infusions to competitors, including money to finance PNC's acquisition of National City. The government kicked in $7.7 billion to PNC, helping to create what will be the nation's fifth-largest bank by deposits and fourth-largest by number of branches.
The bailout was never sold to the public as a means to pay for one bank to acquire another on the cheap, said John Jay, a senior analyst at Boston-based research firm Aite Group. Rather, the government was pitched as an infusion of capital to help banks restart lending.
The deal values National City at just $2.33 per share, a 19-percent discount to the previous day's closing price.
"They're just making a bigger, stronger bank more so," Jay said. "A bank without government help basically has a target on their back. It definitely can be viewed as a strong-arm tactic."
Wilson, the former Merchant's executive, also has concerns.
"This is a whole new world of slippery slopes," he said. "My Libertarian instincts tell me it's awful; however, it could be a whole lot more awful to let the whole thing go down."
Wilson figured National City would survive after it raised $7 billion to shore up its balance sheet back in April, before credit markets seized up. But even a few years ago, when banks were lending like crazy, it didn't take an expert to see that rapidly rising home prices wouldn't be sustainable.
"It's hard to even have an idea what's going on because there's such uncertainty in the credit portfolio of all of these banks," Wilson said. "My sense is there's some overreaction going on."
The program designed to buy distressed assets instead is making strong banks stronger, helping them take out weaker competitors, said Bob Jones, CEO of Evansville-based Old National Bancorp.
Jones is happy his bank made the government's roster of strong banks. Old National is expecting $100 million to $160 million from the program.
The bank will consider acquisitions, but ultimately feels a responsibility to lend more in its markets and help drive economic development.
"As taxpayers, you'd expect us to redeploy that money," Jones said.
Despite the controversy, the deal makes some sense for customers and employees of National City in Indiana, said Bart Narter, senior vice president of the banking group at San Francisco-based consulting firm Celent.
There is virtually zero branch overlap, since National City has 178 branches in the state, and PNC has only eight, in southern Indiana. National City has the second-most Indianapolis-area branches with 77, behind J.P. Morgan Chase's 91. The bank has 1,400 employees locally.
And National City customers get a more stable lender with a broader reach, without the lingering questions about the bank's viability. Depositors pulled $1.3 billion out of accounts at National City during the most recent quarter.
In Pennsylvania and Ohio, the proposed merger looks more grim for bank employees. In Pittsburgh, PNC and National City are No. 1 and No. 2 in size, together making up more than 50 percent of the market's deposits. That likely will mean branch closings or spinoffs and more layoffs.
Many of the job cuts will be in the headquarters citiesCleveland and Pittsburgh, Narter said.
Despite speculation that another bank still might swoop in and offer more for National City, Narter doubts such a move. And other analysts, including those at Standard & Poor's, agree that complications that could derail the deal are unlikely.
"Banks are not dying to get into the hot growth markets of Pennsylvania, Ohio and Indiana," Narter said, sarcastically. "The world isn't beating the door down to establish branch networks in the Rust Belt."