PNC Bank 2006 Annual Report Download - page 92

M ERCANTILE B ANKSHARES C ORPORATION
On October 8, 2006 we entered into a definitive agreement
with Mercantile Bankshares Corporation (“Mercantile”) for
PNC to acquire Mercantile. Mercantile shareholders will be
entitled to .4184 shares of PNC common stock and $16.45 in
cash for each share of Mercantile, or in the aggregate
approximately 53 million shares of PNC common stock and
$2.1 billion in cash. Based on PNC’s recent stock prices, the
transaction is valued at approximately $6.0 billion in the
aggregate.
Mercantile is a bank holding company with approximately
$18 billion in assets that provides banking and investment and
wealth management services through 240 offices in Maryland,
Virginia, the District of Columbia, Delaware and southeastern
Pennsylvania. The transaction is expected to close in March
2007 and is subject to customary closing conditions, including
regulatory approvals. See Note 13 Borrowed Funds regarding
February 2007 debt issuances related to this planned
acquisition.
2005
SSRM H OLDINGS ,I NC .
Effective January 31, 2005, BlackRock closed the acquisition
of SSRM Holdings, Inc. (“SSRM”), the holding company of
State Street Research & Management Company and SSR
Realty Advisors Inc., from MetLife, Inc. for an adjusted
purchase price of approximately $265 million in cash and
approximately 550,000 shares of BlackRock restricted class A
common stock valued at $37 million. SSRM, through its
subsidiaries, actively manages stock, bond, balanced and real
estate portfolios for both institutional and individual investors.
Substantially all of SSRM’s operations were integrated into
BlackRock as of the closing date. BlackRock acquired assets
under management totaling $50 billion in connection with this
transaction.
On January 18, 2005, our ownership in BlackRock was
transferred from PNC Bank, N.A. to PNC Bancorp, Inc., our
intermediate bank holding company. The transfer was effected
primarily to give BlackRock more operating flexibility,
particularly in connection with its acquisition of SSRM. As a
result of the transfer, certain deferred tax liabilities recorded
by PNC were reversed in the first quarter of 2005 in
accordance with SFAS 109, “Accounting for Income Taxes.”
The reversal of deferred tax liabilities increased our earnings
by $45 million, or approximately $.16 per diluted share, in the
first quarter of 2005.
R IGGS N ATIONAL C ORPORATION
We acquired Riggs National Corporation (“Riggs”), a
Washington, D.C. based banking company, effective May 13,
2005. Under the terms of the agreement, Riggs merged into
The PNC Financial Services Group, Inc. and PNC Bank,
National Association (“PNC Bank, N.A.”) acquired
substantially all of the assets of Riggs Bank, National
Association, the principal banking subsidiary of Riggs. The
acquisition gave us a substantial presence on which to build a
market leading franchise in the affluent Washington, D.C.
metropolitan area. In connection with the acquisition, Riggs
shareholders received an aggregate of approximately $297
million in cash and 6.6 million shares of PNC common stock
valued at $356 million.
H ARRIS W ILLIAMS &C O .
On October 11, 2005, we acquired Harris Williams & Co., one
of the nation’s largest firms focused on providing mergers and
acquisitions advisory and related services to middle market
companies, including private equity firms and private and
public companies.
N OTE 3V ARIABLE I NTEREST E NTITIES
We are involved with various entities in the normal course of
business that may be deemed to be VIEs. We consolidated
certain VIEs as of December 31, 2006 and 2005 for which we
were determined to be the primary beneficiary.
We hold significant variable interests in VIEs that have not
been consolidated because we are not considered the primary
beneficiary. Information on these VIEs follows:
Non-Consolidated VIEs – Significant Variable Interests
In millions
Aggregate
Assets
Aggregate
Liabilities
PNC Risk
of Loss
December 31, 2006
Market Street $ 4,020 $ 4,020 $ 6,117(a)
Collateralized debt
obligations 815 570 22
Partnership interests in low
income housing projects 33 30 8
Total $ 4,868 $ 4,620 $ 6,147
December 31, 2005
Collateralized debt
obligations (b) $ 6,290 $ 5,491 $ 51
Private investment funds (b) 5,186 1,051 13
Market Street 3,519 3,519 5,089 (a)
Partnership interests in low
income housing projects 35 29 2
Total $15,030 $10,090 $ 5,155
(a) PNC’s risk of loss consists of off-balance sheet liquidity commitments to Market
Street of $5.6 billion and other credit enhancements of $.6 billion at December 31,
2006. The comparable amounts at December 31, 2005 were $4.6 billion and $.4
billion, respectively.
(b) Primarily held by BlackRock. We deconsolidated BlackRock effective
September 29, 2006. See Note 2 Acquisitions for additional information. Includes
both PNC’s direct risk of loss and BlackRock’s risk of loss, limited to PNC’s
ownership interest in BlackRock.
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