The PNC Financial Services Group (PNC)
negotiated with regulators to repay $7.6bn of funds, nearly three-quarters of what it received in bailout money from the Treasury Department
under the Troubled Asset Relief Program (TARP).
"With signs of an improving economic environment and stabilizing financial system, we believe now is the appropriate time for us to redeem the preferred shares held by the U.S. Treasury...[and] return the taxpayers' investment in PNC," said chairman and CEO James Rohr in a statement this week
. "These strategic actions are expected to improve the quality of our capital and position us for further growth."
As part of the agreement to redeem
preferred shares held by the Treasury, PNC priced a $3bn offering of 55.6m shares of common stock at $54 per share. Underwriters can purchase up to 8.3m additional shares in the event of over-allotments. The offering should close by Feb. 8, 2010. PNC also plans to offer an aggregate $1.5-$2bn of senior notes.
PNC, which runs a real estate portfolio comprised of properties in the northeastern United States, also signed an agreement
to sell PNC Global Investment Servicing
to Bank of New York Mellon (BK)
for $2.3bn as part of the agreement to repay TARP. The sale, when completed in Q310, will give PNC a $5bn after-tax gain and a $1.6bn increase in Tier 1 common capital.
These three measures combined - the TARP repayment, common stock offering and Global Investment Servicing sale - should boost PNC's Tier 1 common capital by $4.3bn. The company's Tier 1 common capital ratio will have increased by about 200 bps to an estimated 8% on a pro forma basis at Dec. 31, 2009. PNC'ss Tier 1 risk-based capital will have been 10.3%.
The Treasury is already supporting the move to repay taxpayers.
"Government policies have helped restore our financial system and economy to health, giving banks such as PNC an opportunity to replace Treasury investments with private capital and reducing the burden of debt on future generations," Treasury said in a statement Wednesday
The Treasury indicated PNC's return of TARP funds will bring total repayments to 70% of funds invested through the program. PNC's repayment also means that $203bn of the $376bn total TARP disbursements remain outstanding.
Write to Diana Golobay
Disclosure: The author holds no relevant investment positions.