Changes expected as National City joins PNC

Nov 07, 2008 (Pittsburgh Post-Gazette - McClatchy-Tribune Information Services via COMTEX) -- PNC | Quote | Chart | News | PowerRating -- Although PNC Financial Services Group has said the process of gobbling up like-size rival National City Corp. could take up to two years, it likely won't be long before Pittsburgh-area customers begin to feel the reverberations of the blockbuster in-market merger.

For now, PNC says it isn't ready to comment on any changes in store for customers, employees or the marketplace as it works toward the acquisition's projected Dec. 31 closing.

But experts say customers can expect changes to their accounts, branch consolidations and a push by rival banks to steal depositors who may be unsettled by the disruptions inherent in a merger.

"My expectation is that PNC will proceed carefully and deliberately, but that there will be changes for folks -- that is just part of the process," said Bert Ely, a banking consultant in Alexandria, Va.

One obvious result of the No. 1 and No. 2 banks combining in this region will be branch closings where the two institutions overlap. In the metropolitan Pittsburgh region, PNC has 96 offices, while National City has 158.

PNC "won't want two branches a quarter mile apart," Mr. Ely said. In some cases, it could be PNC offices that close instead of National City's, depending on which are better situated.

When that happens, it's typical to lose some customers along the way, he said.

"It may be the branch is no longer convenient, or there has been turnover in personnel that [customers] are not happy about," and those depositors bolt, Mr. Ely said.

"One of the great challenges of an in-market consolidation is trying to minimize customer loss, particularly if they close a lot of branches," he said. "Dollar Bank [No. 4] and Citizens [No. 3] probably will be pretty aggressive" in going after disgruntled customers.

Besides consolidations, PNC will probably be forced to divest some branches here to ease antitrust concerns, something Chairman and Chief Executive Officer James Rohr acknowledged the day the deal was announced. Combined, the two institutions would control some 53 percent of deposits in this region and close to 60 percent in Allegheny County.

"I have to think someone will raise some antitrust questions about that," Mr. Ely said.

Following the announcement of any bank merger, customers of the target bank are courted, both by the acquiring institution as well as by other banks hoping to add to their depositor base.

Mr. Ely said PNC might minimize the looting of customers by offering some sweeteners to National City customers, such as a reduced rate on a credit card, a break on fees, an enticing rate on a certificate of deposit or other goodies, such as a free safe deposit box. Rivals, too, will probably run advertisements dangling their own offers.

Competing banks also will attempt to lure away some of National City's best employees, Mr. Ely said. National City CEO Peter Raskind, who this week announced he would not be staying on as vice chairman of the merged company as originally planned, has said it would be logical for PNC to offer retention incentives to employees it would most like to keep.

Layoffs also are inevitable among National City's 1,800 area employees, including the 250 people who work at the Cleveland-based bank's Pittsburgh regional headquarters on Stanwix Street, Downtown. PNC has not yet addressed how many jobs might go.

National City customers also will face changes under the bank's new owner.

While PNC must honor terms and rates of products that are locked in to maturity, such as on mortgages and CDs, the terms of nonfixed accounts including savings, checking and credit card accounts are fair game.

Still, Mr. Ely believes that PNC will proceed carefully with any changes to avoid upsetting too many customers.

"PNC has an incentive not to be brutal in terms of how they adjust interest rates," he said.

"If you make a hash of the integration, you do damage to the franchise," Mr. Ely said. That was a painful lesson that the banking industry learned after several high-profile mergers were bungled, most notably the botched conversion of Philadelphia's

CoreStates Financial by First Union in 1998.

Even if things go smoothly, it's not unusual for an acquiring bank to lose as much as 25 percent of the target bank's customers, said Bart Narter of Celent, a Boston financial research and consulting firm. But attrition is generally higher when the merger involves a large bank acquiring a small one. More customers tend to stay put when a big bank acquires another big bank, which is the case with the PNC-National City deal, Mr. Narter said.

Convenience is the main consideration of customers. They want a bank with branches close to their homes and workplaces, plus a large network of automated teller machines.

"Do you want to bank with a bank with three ATMs in Pittsburgh or one that has 100?" he asked.

Locally, a top executive at Dollar Bank indicated that the bank was not expecting much customer runoff from the merger.

"I really don't think that in the Pittsburgh market [the merger] is going to be an extremely disruptive event," Executive Vice President Jeff Morrow said.

Mr. Morrow said Dollar viewed the acquisition positively, both because PNC is a "known quantity" and because it would mean National City's assets would go to a local bank.

"We're pleased that if anyone had to acquire National City, it was PNC," Mr. Morrow said. "It's good for Pittsburgh."

Even before PNC came along, the fight for National City customers was on because of worries about the bank's condition. National City had been seeking a buyer as it sunk under the weight of mounting losses and soured loans.

Since the summer of 2007 when the magnitude of National City's troubles started to surface, the bank's share of deposits in the Pittsburgh region skidded 7 percent, from 16.7 percent to 15.5 percent as of June 2008, according to figures from the Federal Deposit Insurance Corp. At the same time, PNC's market share jumped from 32.7 percent to 37.1 percent.

But Mr. Ely believes that customers' flight to more secure banks has eased in recent weeks.

"I'm getting the sense that has tapered off," he said.

One big factor alleviating people's concerns about shaky banks, he said, is the FDIC's decision to temporarily raise deposit insurance from $100,000 to $250,000 and offer unlimited coverage on the types of noninterest-bearing accounts that small businesses tend to use.

Staff writer Len Boselovic contributed to this story.

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