Picking winners

PNC Financial Services Group Inc. will absorb National City Corp. after federal officials turned down National City's request for new capital under the government's $700 billion rescue program.

PNC agreed to pay $5.6 billion for National City, an Ohio-based bank holding company that ran into trouble because of expansion and exposure to subprime mortgage loans. The price of $2.23 a share reflects a roughly 19 percent discount to National City's closing price the day before the deal was announced.

The Treasury Department and the Federal Deposit Insurance Corp. helped arrange the takeover. The deal marked the first time that the government has intervened in picking winners and losers in the financial industry since Treasury officials announced that part of the $700 billion in bailout money would be used to make direct investments in banks rather than to buy their troubled assets.

The Treasury Department said earlier this month that it would invest $125 billion in nine big banks, including Citigroup Inc., Bank of America Corp. and Goldman Sachs & Co. It is taking applications from other banks for an additional $125 billion, with requests due by Nov. 14.

PNC, which is based in Pittsburgh, will get $7.7 billion in fresh capital through the sale of preferred shares and warrants to the government. The merger with National City will make it the fifth-largest U.S. bank in terms of deposits.

Peter E. Raskind, National City's chairman and chief executive, will become a vice chairman of PNC. He and other National City officers will qualify for millions of dollars in payouts under the change-in-control provisions in their employment contracts. The packages include cash payments equal to three times their annual salary and incentive bonuses.

According to National City's proxy filing with the Securities and Exchange Commission in March, Raskind stood to receive $19.9 million in cash, before taxes, and $2.45 million in stock, which at the time was valued at $16.46 a share. It pegged the after-tax value of his change-in-control package at $8.8 million.

The proxy filing put the payouts for National City's top three executives at $45 million, before taxes, with $30.5 million of that in cash.

PNC said in a press release that its estimated internal return rate on the acquisition will exceed 15 percent, and that the deal should add to the company's earnings in the second year after it is completed. PNC's stock price rose $2.00 on Friday, or 3.5 percent, to close at $58.88.

In other banking news, the FDIC and Georgia Regulators shut down Alpha Bank & Trust of Alpharetta, Ga., on Friday. The FDIC struck a deal with Stearns Bank NA of St. Cloud, Minn., to assume Alpha Bank's more than $340 million in insured deposits.

According to an FDIC summary, Alpha Bank is the 16th bank that the agency has shut down this year.