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The PNC-National City Merger

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Tom Dent, CFA

Senior Vice President and Senior Credit Manager

Credit Administration Center, Cleveland

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Agenda

•Introduction

•Merger Timeline

•Post-Merger Integration

•Q & A

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Introduction

•Background

•Current Role

•Integration Responsibilities

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Market Events

•The subprime mortgage market begins to decline, creating stress at subprime lenders and hedge funds with investments in mortgage-backed securities

•American Home Mortgage Investment Corporation files for chapter 11

•Banks stop lending to each other and the Fed steps in to provide liquidity in an attempt to restore confidence

2007

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Market Events

• Bank of America purchases Countrywide

• President Bush signs the Economic Stimulus Act of 2008 into law

• The Fed continues easing, with the Fed Funds Target Rate set at 2.25% in March

• Bear Stearns fails and is sold to JP Morgan Chase

• IndyMac Bank is seized by OTS

• President Bush signs the Housing and Economic Recovery Act of 2008 into law

2008

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Market Events

•Fannie Mae and Freddie Mac placed in government conservatorship

•Bank of American announces intent to purchase Merrill Lynch & Co

•Lehman Brothers files for Chapter 11

•Treasury submits draft legislation for TARP

•Goldman Sachs and Morgan Stanley convert to bank holding companies

2008

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Merger Timeline

•OTS closes Washington Mutual; JP Morgan Chase acquires WaMu’s banking operations

•Wachovia sold to Wells Fargo, superseding previous deal with Citigroup arranged by the FDIC

•President Bush signs the Emergency Economic Stabilization Act into law, authorizing the $700 billion TARP program

2008

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National City Events

•Dividend cut by 49%

•Raised $650 million in common stock and $1.4 billion in convertible notes

January 2008

March 2008

•Put on review for downgrade by Moody’s

•Stock price continues to decline

•Experiences meaningful deposit outflows and reductions of trading lines

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National City Events

•Begins exploring both strategic and capital raise options

•Several parties conduct due diligence

April 2008

May 2008

•Completes $7 billion capital infusion by Corsair and several other investors at $5 per share

•Capital ratios are among the highest of large US banks

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National City Events

•Reports net loss of $1.8 billion for 2Q08

•Begins conducting review of operations in effort to reduce expense base, sell non-core assets and reduce liquidating asset portfolios

•Confirms publicly that it had previously entered into Memorandum of Understanding with the OCC and Federal Reserve

June 2008

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National City Events

•3rd: Downgraded by S&P

•19th: TARP announced by Treasury

•25th: WaMu fails

•29th: House votes on but does not approve TARP; stock falls to all time low of $1.36;

•30th: Placed on review for downgrade by Moody’s; hires Goldman and Morgan Stanley as advisors

September 2008

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National City Events

•1st: Cash on hand falls from $12B to $6B

•2nd: Board discusses strategic alternatives

•3rd: Downgraded by Fitch

•3rd: EESA passed

•4th: Submits information to Treasury concerning participation in TARP for sale of distressed assets

•6th: Potential partners update due diligence

October 2008

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National City Events

•12th: All suitors drop out of discussions, including U.S. Bank, which had previously offered $0.92

•13th: Morgan Stanley advises that there is no market for distressed loans

•14th: Treasury announces Capital Purchase Program, Temporary Liquidity Guarantee Program and unlimited insurance on non-interest-bearing deposit accounts

October 2008

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National City Events

•16th: U.S. Bank bids $1.00, implying that they will get TARP support

•18th: U.S. Bank sweetens bid to $1.25

•19th: OCC formally informs that NCC will not receive TARP funds, must find a buyer

•20th: Goldman reaches out to previous suitors in effort to get a better deal; combination deal with Fifth Third deemed too complicated

October 2008

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National City Events

•21st: Announces 3Q loss of $729 million and cost-cutting plan

•22nd: U.S. Bank again raises bid to $1.75, delivers draft transaction documentation; Treasury notifies that they will announce TARP recipients on Friday, October 24th at market open

October 2008

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National City Events

•9:00 am: U.S. Bank is told that the NCC Board will approve the deal for $1.75 at meeting at 9:30 pm

•11:00 am: PNC CEO Jim Rohr calls NCC CEO Peter Raskind and offers $2.15; Raskind wants to see it in writing

•6:00 pm: Rohr calls Raskind back and says that the PNC board has approved the offer

October 23rd, 2008

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National City Events

•8:00 pm: Rohr delivers written offer at $2.15; Raskind calls U.S. Bank to notify them of a competing offer and to inquire if they want to match it; U.S. Bank drops its offer altogether

•9:30 pm: The NCC Board meets and is advised of the PNC offer; legal counsel and Goldman advise that the PNC offer is fair and represents the best option available

October 23rd, 2008

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National City Events

•2:00 am: Raskind and Rohr meet at the Hyatt Regency in Cleveland to finalize the terms; PNC offers $2.23

•6:00 am: NCC Board reconvenes to discuss the latest offer; they vote to approve the merger and recommend to shareholders that they approve the merger

•8:45 am: PNC and National City execute the merger agreement

October 24th, 2008

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National City Events

•9:25 am: The deal is announced – National City is sold to PNC for approximately $5.5 billion, creating the fifth largest U.S. bank

October 24th, 2008

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Post-Merger Integration

•Deal closed on December 31st, 2008

•All branches converted by June 2010

—16 million accounts

—6 million customers

—1300 branches

•Expect annualized cost savings of $1.8 billion by end of 2010

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Post-Merger Integration

•Keys to success

—Experience

—Engagement

—Culture

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Questions?