PNC Bank 2009 Annual Report Download - page 62

B LACK R OCK
Information related to our equity investment in BlackRock
follows:
2009 2008
Business segment earnings
(in millions) (a) $207 $207
PNC’s share of BlackRock earnings (b) 23% 33%
Carrying value of PNC’s investment in BlackRock
(in billions) (b) $ 5.8 $ 4.2
(a) Includes PNC’s share of BlackRock’s reported GAAP earnings and additional
income taxes on those earnings incurred by PNC.
(b) At December 31.
B LACK R OCK /B ARCLAYS
G LOBAL I NVESTORS T RANSACTION
On December 1, 2009, BlackRock acquired BGI from
Barclays Bank PLC in exchange for approximately $6.65
billion in cash and 37,566,771 shares of BlackRock common
and participating preferred stock.
In connection with the BGI transaction, BlackRock entered
into amendments to stockholder agreements with PNC and its
other major shareholder. These amendments, which changed
certain shareholder rights, including composition of the
BlackRock Board of Directors and share transfer restrictions,
became effective upon closing of the BGI transaction. Also in
connection with the BGI transaction, BlackRock entered into a
stock purchase agreement with PNC in which we purchased
3,556,188 shares of BlackRock’s Series D Preferred Stock at a
price of $140.60 per share, or $500 million, to partially
finance the transaction. On January 31, 2010, the Series D
Preferred Stock was converted to Series B Preferred Stock.
Upon closing of the BGI transaction, the carrying value of our
investment in BlackRock increased significantly, reflecting
our portion of the increase in BlackRock’s equity resulting
from the value of BlackRock shares issued in connection with
their acquisition of BGI. PNC recognized this increase in
value as a $1.076 billion pretax gain in the fourth quarter of
2009. At December 31, 2009, our percentage ownership of
BlackRock common stock was approximately 35%.
B LACK R OCK LTIP P ROGRAMS AND E XCHANGE A GREEMENTS
PNC’s noninterest income included pretax gains of $98
million in 2009 and $243 million in 2008 related to our
BlackRock LTIP shares obligation. These gains represented
the mark-to-market adjustment related to our remaining
BlackRock LTIP common shares obligation and resulted from
the decrease in the market value of BlackRock common shares
in those periods.
As previously reported, PNC entered into an Exchange
Agreement with BlackRock on December 26, 2008. The
transactions that resulted from this agreement restructured
PNC’s ownership of BlackRock equity without altering, to
any meaningful extent, PNC’s economic interest in
BlackRock. PNC continues to be subject to the limitations on
its voting rights in its existing agreements with BlackRock.
Also on December 26, 2008, BlackRock entered into an
Exchange Agreement with Merrill Lynch in anticipation of the
consummation of the merger of Bank of America Corporation
and Merrill Lynch that occurred on January 1, 2009. The PNC
and Merrill Lynch Exchange Agreements restructured PNC’s
and Merrill Lynch’s respective ownership of BlackRock
common and preferred equity.
The exchange contemplated by these agreements was
completed on February 27, 2009. On that date, PNC’s
obligation to deliver BlackRock common shares was replaced
with an obligation to deliver shares of BlackRock’s new
Series C Preferred Stock. PNC acquired 2.9 million shares of
Series C Preferred Stock from BlackRock in exchange for
common shares on that same date. PNC accounts for these
preferred shares at fair value, which offsets the impact of
marking-to-market the obligation to deliver these shares to
BlackRock as we aligned the fair value marks on this asset
and liability. The fair value of the BlackRock Series C
Preferred Stock is included on our Consolidated Balance Sheet
in Other assets. Additional information regarding the
valuation of the BlackRock Series C Preferred Stock is
included in Note 8 Fair Value in the Notes To Consolidated
Financial Statements included in Item 8 of this Report.
PNC accounts for its remaining investment in BlackRock
under the equity method of accounting, with its share of
BlackRock’s earnings reduced primarily due to the exchange
of BlackRock common stock for BlackRock Series C
Preferred Stock. The Series C Preferred Stock is not taken into
consideration in determining PNC’s share of BlackRock
earnings under the equity method. PNC’s percentage
ownership of BlackRock common stock increased as a result
of the substantial exchange of Merrill Lynch’s BlackRock
common stock for BlackRock preferred stock. As a result of
the BlackRock preferred stock held by Merrill Lynch and the
new BlackRock preferred stock issued to Merrill Lynch and
PNC under the Exchange Agreements, PNC’s share of
BlackRock common stock is higher than its overall share of
BlackRock’s equity and earnings. The transactions related to
the Exchange Agreements do not affect our right to receive
dividends declared by BlackRock.
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