PNC Bank 2008 Annual Report Download - page 28

National City, based in Cleveland, Ohio, was one of the
nation’s largest commercial banking organizations based on
assets. We expect to incur total merger and integration costs of
approximately $1.2 billion in connection with the acquisition
of National City, including $575 million recognized in the
fourth quarter of 2008. The transaction is expected to result in
the reduction of approximately $1.2 billion of combined
company annualized noninterest expense through the
elimination of operational and administrative redundancies.
Other than the merger and integration costs discussed above,
our acquisition of National City did not impact our 2008
Consolidated Income Statement, nor did it impact our 2008
Average Consolidated Balance Sheet. Note 2 Acquisitions and
Divestitures included in our Notes To Consolidated Financial
Statements within Item 8 of this Report and our Current
Reports on Form 8-K filed October 24, 2008, October 30,
2008, December 23, 2008, and January 2, 2009 provide
additional information regarding our acquisition of National
City.
R ECENT M ARKET AND I NDUSTRY D EVELOPMENTS
Starting in the middle of 2007 and with a heightened level of
activity during the second half of 2008 and into early 2009,
there has been unprecedented turmoil, volatility and illiquidity
in worldwide financial markets, accompanied by uncertain
prospects for the overall national economy, which is currently
in the midst of a severe recession. In addition, there have been
dramatic changes in the competitive landscape of the financial
services industry during this time.
Recent efforts by the Federal government, including the US
Department of the Treasury, the Federal Reserve, the FDIC,
and the Securities and Exchange Commission, to stabilize and
restore confidence in the financial services industry have
impacted and will likely continue to impact PNC and our
stakeholders. These efforts, which will continue to evolve,
include the Emergency Economic Stabilization Act of 2008,
the American Recovery and Reinvestment Act of 2009, and
other legislative, administrative and regulatory initiatives,
including the US Treasury’s TARP and TARP Capital
Purchase Program, the FDIC’s Temporary Liquidity
Guarantee Program (“TLGP”) and the Federal Reserve’s
Commercial Paper Funding Facility (“CPFF”).
Beginning in the fourth quarter of 2008, PNC participated in
several of these programs as further described below:
TARP C APITAL P URCHASE P ROGRAM
The TARP Capital Purchase Program encourages US financial
institutions to build capital through the sale to the US
Treasury of senior preferred shares of stock to increase the
flow of financing to US businesses and consumers and to
support the US economy.
On December 31, 2008, PNC issued to the US Treasury $7.6
billion of preferred stock together with a related warrant to
purchase shares of common stock of PNC, in accordance with
the terms of the TARP Capital Purchase Program. Funds from
this sale count as Tier 1 capital and the warrant qualifies as
tangible common equity.
Holders of this preferred stock are entitled to a cumulative
cash dividend at the annual rate per share of 5% of the
liquidation preference per year for the first five years after the
closing date. Afterward, the annual dividend rate will increase,
to 9% per year. PNC’s intent is to redeem this preferred stock
prior to the escalation of the dividend rate.
Note 19 Shareholders’ Equity included in our Notes to
Consolidated Financial Statements within Item 8 of this
Report includes additional information regarding the preferred
stock and the related warrant that we issued under this
program.
FDIC T
EMPORARY L IQUIDITY G UARANTEE P ROGRAM
The FDIC’s TLGP is designed to strengthen confidence and
encourage liquidity in the banking system by:
• Guaranteeing newly issued senior unsecured debt of
eligible institutions, including FDIC-insured banks
and thrifts, as well as certain holding companies
(“TLGP-Debt Guarantee Program”), and
• Providing full deposit insurance coverage for
non-interest bearing transaction accounts in FDIC-
insured institutions, regardless of the dollar amount
(“TLGP -Transaction Account Guarantee Program”).
In December 2008, PNC Funding Corp issued at the holding
company level fixed and floating rate senior notes totaling
$2.9 billion under the FDIC’s TLGP-Debt Guarantee Program
as more fully described within the Liquidity Risk
Management section of this Item 7. Each of these series of
senior notes is guaranteed by the FDIC and is backed by the
full faith and credit of the United States through June 30,
2012.
As of October 14, 2008, PNC Bank, N.A. and National City
Bank have been participating in the TLGP-Transaction
Account Guarantee Program. Under this program, through
December 31, 2009, all non-interest bearing transaction
accounts are fully guaranteed by the FDIC for the entire
amount in the account. Coverage under this program is in
addition to, and separate from, the coverage available under
the FDIC’s general deposit insurance rules.
C OMMERCIAL P APER F UNDING F ACILITY
The Federal Reserve established the CPFF to provide a
liquidity backstop to US issuers of commercial paper and
thereby improve liquidity in short-term funding markets and
thus increase the availability of credit for businesses and
households. Effective October 28, 2008, Market Street
Funding LLC (“Market Street”) was approved to participate in
the Federal Reserve’s CPFF. The CPFF commitment to
purchase up to $5.4 billion of three-month Market Street
commercial paper expires on October 30, 2009. As of
December 31, 2008, Market Street’s participation in this
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