£3.5bn Takeover of National City a Suitable Fit Says Buyer Pnc

The stricken US regional bank National City Corporation succumbed yesterday to a $5.6bn (£3.5bn) buyout by its rival PNC after suffering a slide in investor confidence over its exposure to toxic mortgages.

National City is based in the Ohio city of Cleveland, where the housing market has been badly affected by the American sub-prime home loans crisis. The bank has suffered losses over five consecutive quarters, culminating in a $729m deficit announced this week.

Under the terms of the deal, PNC is paying $2.23 a share for National City, which began the year with a stock price of more than $16.

The transaction is the latest in a series of buyouts of loss-making high-street banks, including those affecting Wachovia and Washington Mutual.

Founded in 1845, National City is a familiar name throughout the American midwest. It employs 29,000 people. A combination with the Pittsburgh-based PNC will create a bank ranking fifth in the US by deposits, and fourth by branches. Both sides characterized the deal as a strategic fit, rather than a fire sale.

Peter Raskind, National City's chairman, said: "This transaction is about two companies that fit well together in terms of geography, products and services."

But there is little doubt that National City faces significant financial challenges, largely arising from a former mortgage subsidiary named First Financial. Earlier in the week Raskind admitted that the economic environment had remained tough: "It probably gets worse before it gets better."

PNC, meanwhile, revealed that it intended to take advantage of the US treasury's program of investments in banking shares. It is selling $7.7bn worth of stock and warrants to the government to bolster its balance sheet.

Analysts welcomed National City's takeover. David Havens, a credit desk analyst at UBS, told Bloomberg News: "It certainly beats having these troubled banks end up being taken over by the government."