Two banks with big footprints in Kentucky announced a merger Friday that will create the nation's fifth-largest bank.
Pittsburgh-based PNC Financial Services Group will buy Cleveland's National City Corp. for $5.6 billion in stock and cash. PNC also will receive $7.7 billion in capital through the federal government's bank bailout program.
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The merger is expected to close by Dec. 31.
"This is the taxpayers coming to the rescue of NCC (National City) and using PNC as their agent," said University of Kentucky banking professor Don Mullineaux. It is "a heck of a great deal" for PNC, because of the low price.
Both banks have operations in Kentucky, where National City is No. 1 in deposits, with an 8.95 percent market share, according to the Federal Deposit Insurance Corp.
Mullineaux said the merger also will have "strong prospective implications" for the commercial real estate markets in Lexington, Louisville and other cities around the state where both banks now operate.
PNC and National City have headquarters in downtown Lexington — one or both of which might be closed, if the banks moved to a new location — and branch banks around the city that might be closed because they are too close to other branches.
James Schrader of Schrader Commercial Properties, the leasing agent for National City Plaza at 301 East Main Street, said he began getting calls soon after the merger was announced Friday from people who wanted to know if National City would be leaving that building.
It's too early to know if that will happen or "what will happen with the downtown real estate market," Schrader said.
He expects that when the banks' headquarters are merged, a smaller bank is likely to take the abandoned location, which would already have a vault and other facilities required for a bank.
"We do have room for PNC to expand at National City Plaza," he said.
Banks view mergers as "cost-cutting opportunities," Mullineaux said, in which they typically try to reduce expenses in each market by 25 percent to 45 percent by combining accounting and other so-called back-room operations, merging branches and reducing staff wherever possible.
Representatives for PNC and National City said it is too early to know which offices will be closed and who will lose their jobs.
Fred Solomon, with PNC in Pittsburgh, said the process of merging the banks' offices, processing centers, automated-teller machines and computer systems is expected to take about two years.
During that time, assessments will be made of both facilities and people to determine where reductions will occur, he said.
National City has about 1,300 employees in Kentucky, including 940 in Louisville, but Solomon said PNC does not release employment data for the states and cities it does business in.
For National City customers, the merger process should be "seamless," he said. They can continue to use National City checks, ATM cards and other items until they receive free replacements from PNC.
National City shareholders will receive 0.0392 shares of PNC common stock for each share of National City they own.
After the merger, PNC will move up from sixth to first among banks doing business in Kentucky. It will have about $8.05 billion in deposits and a market share of nearly 12.5 percent.
In Fayette County, PNC, which is now 11th with a 2.3 percent market share, will become the fourth-largest bank, with $634.9 million in deposits and a 11.7 percent market share, according to the FDIC data.
In addition to ranking fifth nationally in deposits after the merger, PNC will be fourth among U.S. banks in the number of branches. In addition to Kentucky, PNC will have the No. 1 deposit share in Pennsylvania and Ohio, and the No. 2 share in Indiana and Maryland.
The possible merger of PNC and National City has been mentioned for weeks by bankers and the news media because of National City's mounting losses from bad mortgages and the downturn in key real estate markets.
The bank reported a loss of $5.15 billion, or $5.86 per share, for the quarter ended Sept. 30. Excluding a special dividend, National City lost $729 million, or 85 cents per share.
The bank announced earlier this week that it was cutting its work force by 14 percent or about 4,000 jobs.