PNC Buys National City and Hits the TARP

Consolidation goes regional.

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After weeks of speculation as its share price headed toward the floor, Cleveland-based regional bank National City goes to PNC Financial Services.

The deal creates the country's fifth-largest bank by deposits.

The deal:

PNC will pay $5.58 billion in stock and cash for National City and get $7.7 billion through the government's bailout plan. The deal values National City at about $2.23 a share, or about 19 percent below yesterday's closing price (it traded around $23 a year ago). PNC says its Tier 1 capital ration will be about 10 percent, and the combined firm will be well above regulatory standards for a "well-capitalized" bank. Why this is good:

A couple of reasons: First, National City was probably the biggest regional at risk as the credit crisis spreads. Second, the use of the Troubled Asset Relief Program (TARP) funds is encouraging. It's a positive sign that banks are using the government's lending offer to get markets moving again. And lastly, a quick note to National City's press team who just yesterday chided me for saying that the bank was up for sale: We won't be running that correction.