PNC Bank Smartly Moves West with Nat City Purchase

Chalk it up to basic geography.

In a time when most businesses are cutting back, PNC Bank is aggressively pursuing growth. The Pittsburgh bank announced today that it would acquire Cleveland-based National City Bank in a deal that will significantly expand PNC’s market presence in the Midwest.

PNC will pay $5.2 billion for National City, a bank beleaguered by the poor performance of its mortgage portfolio.

“The acquisition will allow PNC to cover some very attractive markets and enhance our already strong presence in Pittsburgh, Cincinnati and Louisville,” said James Rorh, Chairman and CEO of PNC Bank, on a conference call this morning. “I look forward to growing in Columbus, Indianapolis, St. Louis and Chicago — all dynamic metropolitan areas with increasing populations.”

Rorh said that there were competitive bids for Nat City from other banks. He would not divulge any names.

With National City, PNC Bank will become the fifth-largest bank in the nation in deposits and the fourth-largest by number of branches.

Interestingly, just yesterday PNC made public a 10-year exclusive agreement with Giant Food LLC, Landover, Md., for 41 new in-store PNC branches and 180 ATMs to be in place in 2009 in Giant supermarkets. The Giant deal will create new 225 jobs at PNC.

We see the Giant deal as closely fitting with PNC’s current strategy. PNC, which in the early part of this decade was seeking growth by providing more services, has reverted to a location-driven strategy. The Giant deal expands PNC’s footprint in the Mid Atlantic; Nat City expands its footprint in the Midwest.

A location-focused strategy seems like a traditional strategic play considering today’s financial dislocation and deposit-centric economy. While a grandiose geographic expansion did not work out well for WaMu, that does not mean PNC’s plans will fall flat. Assuming it can weather National City’s crumbling portfolio performance (National City reported a $5.15 billion third-quarter loss this week), PNC should be set up to take advantage of the eventual economic revitalization – in the Midwest and Mid Atlantic, as well.