CHICAGO - Capping months of speculation, Pittsburgh-based PNC Financial Services Group said Friday it would acquire struggling Cleveland-based National City Corp. in a government-supported sale that is expected to expand PNC's deposit - and public finance - business in Ohio.

PNC expects to close the $5.6 billion deal by the end of the year, and will spend the next 23 months integrating the two firms, said spokesman Fred Solomon.

The firm said it would receive a $7.7 billion capital injection from the U.S. Treasury that would help support the deal. The acquisition would make PNC the largest bank in Ohio, Pennsylvania, and Kentucky, and the second largest in Indiana and Maryland.

On the public finance side, bank representatives as well as some Ohio-based issuers who use NatCity's underwriting services said Friday it is still too early to determine the sale's impact on either firm's municipal business.

As it is, NatCity Investments Inc., the company's broker-dealer subsidiary, operates with only a handful of bankers in a Cleveland office after shrinking its municipal business over the last few years, according to sources.

The acquisition would likely broaden PNC Capital Market Inc.'s public finance footprint in northeast Ohio one year after the firm opened an office in Columbus. Late last year PNC hired four bankers to staff the office with an eye toward further expansion in the region, PNC officials said at the time.

Many Ohio issuers used NatCity as well as PNC as underwriters, including the state treasurer's office. "This will mean one fewer player, but we have worked with both of them and remain confident in our underwriting options," said treasurer spokesman Holly Hollingsworth.

An official at the Ohio Housing Finance Agency, which hired NatCity as one of a group of local underwriters on an upcoming bond sale, said he did not expect the acquisition to impact next week's transaction. "This [the sale] will take a couple months at least," said OHFA's debt manager Bob Connell.

PNC has doubled the size of its public finance team since 2003 and grown its operations in Delaware, Maryland, New Jersey, Ohio, Virginia, and Washington, D.C. Earlier this year the firm hired three new public finance bankers in Pennsylvania and New Jersey. Those hires boosted the firm's public finance department to more than 30 people.

In contrast, NatCity has shrunk its municipal department of late after a short-lived expansion plan in early 2005. The firm in 2006 expanded into Detroit and Indianapolis, hiring five bankers, an analyst, and several administrative assistants. But the firm closed both offices less than two years later.

The expansion was overseen in part by then-public finance head Dennis Golem, who a few months later was replaced by Cameron Mitchell. Mitchell left the firm's public finance department about six months ago to head up NatCity's derivatives department, he said Friday.

NatCity last year ranked 12th in Ohio among senior managers, while PNC Capital Markets ranked 28th in the state, according to Thomson Reuters. So far this year NatCity has ranked ninth in the state, with PNC ranking 17th among senior managers. In Pennsylvania, PNC Capital Markets ranked fourth last year and second so far this year, with NatCity ranking 17th in the state last year and 21st so far this year.

In the Midwest, NatCity last year ranked 27th among senior mangers with PNC ranking 48th. In the Northeast region, PNC last year - and so far this year - ranked 11th among senior managers, while NatCity ranked 31st in the region last year and 43d so far this year.

Nationally in 2007 PNC ranked 21st among senior managers and NatCity ranked 42d. So far this year PNC ranks 17th nationally while NatCity ranks 40th.

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