The National City acquisition by PNC was the deal by PNC Financial Services to acquire National City Corp. on October 24, 2008 following National City's untenable loan losses during the subprime mortgage crisis. The deal received much controversy due to PNC using TARP funds to buy National City only hours after accepting the funds while National City itself was denied funds, as well as civic pride for the city of Cleveland, Ohio, where National City was based.
Pre-merger history
Both PNC and National City's corporate histories date to the mid19th century. National City was founded as the City Bank of Cleveland in 1845, while PNC was founded in longtime Cleveland rival, Pittsburgh, as the Pittsburgh Trust and Savings Company, in 1852. Both banks would later receive national charters under the National Banking Act, with National City being able to print U.S. currency until the United States Treasury assumed operations in the 1920s. Both would have strong bases in their home markets, although PNC would until the 1980s be dwarfed in Pittsburgh by Mellon Bank (now The Bank of New York Mellon) and the massive influence of the Mellon family.
Both banks began interstate expansion in the 1980s, with the two eventually competing in Cincinnati and Louisville by the end of the decade. In late 1992, PNC announced plans to acquire Youngstown, Ohio-based Ohio Bancorp. PNC later backed out of the deal, and National City acquired Ohio Bancorp instead in 1993, with the same branches and even some employees of Ohio Bancorp still employed with National City at the time of the PNC deal.
Although PNC would never enter the Cleveland market on its own before the National City deal, National City did enter Pittsburgh in late 1995 with its acquisition of Pittsburgh-based Integra Bank, putting it in third in market share behind PNC and Mellon, and eventually second after Mellon sold off its retail banking division to RBSowned Citizens Financial Group in 2001.
As early as 2003, there were talks of a potential PNCNational City merger down the road, with National City being the surviving entity. However, PNC CEO and Chairman Jim Rohr, a Cleveland native who would later orchestrate PNC's acquisition of National City, insisted at the time that PNC was not for sale.
National City problems
The downfall of National City began in 2007 when the United States housing bubble began to burst, and consumers defaulted on subprime mortgages. Although National City was otherwise healthy on paper, the mortgage business was dragging down profits into losses, with CEO Peter Raskind even fearing that the bank might fail. National City then put itself up for sale in March 2008.
Adding to the bank's problems, The Wall Street Journal reported on June 6, 2008, that National City had entered into a memorandum of understanding with federal regulators, effectively putting the bank on probation. Terms of the confidential agreement, entered into a month earlier with the Office of the Comptroller of the Currency (which regulates nationally chartered banks), were not known.
On June 10, 2008, National City Corp. confirmed that it had reached agreements with regulators "regarding capital levels, risk-management practices and other aspects of its business." The company stated that there had been no material developments in these areas since these memorandums of understanding were signed in April and May 2008.
By October 2008, National City was in serious sale discussions following the failure of Washington Mutual and the forced sale of Wachovia to Wells Fargo. Among the publicly known frontrunners were Minneapolis-based U.S. Bancorp (U.S. Bank), Torontobased Scotiabank, and eventual buyer PNC. Scotiabank, which has long stayed out of the U.S. market unlike its Canadian rivals, was considered the best option for the local government since Scotiabank didn't have a preexisting presence in the United States, allowing most of the National City operations to stay in Cleveland. Although National City and PNC had minimal overlap, the close proximity of Cleveland to Pittsburgh meant massive layoffs in both cities.
Wells Fargo, Fifth Third Bank, and crosstown rival KeyBank all also expressed interest in National City, with Fifth Third even offering to move its corporate headquarters to Cleveland from across the state in Cincinnati if it were to buy National City. Like U.S. Bancorp (U.S. Bank), Fifth Third had a redundant footprint with National City, while Wells Fargo (even after its acquisition of Wachovia) had virtually no overlap with National City at all. KeyBank and National City had very little overlap outside Ohio, although some branches in Northeast Ohio would've likely required divesture.