US Bank Consolidation Not A Given

On October 5th PNC Financial Services, backed by US$7.7bn from the Treasury Department's US$250bn Troubled Asset Relief Program (TARP), announced that it was acquiring embattled bank National City for US$5.58bn. The deal makes PNC the fifth-largest bank by deposits in the US, but more importantly it also represents the first instance of a bank using capital from the recent government bailout to make an acquisition. Hank Paulson has already handed US$125bn to the US's nine largest lenders, stating that the remaining funds should be used for recapitalisation and to fund takeovers. Consequently, to many the PNC deal seemed to offer a blueprint for further industry consolidation going forward. It has been widely predicted that the ongoing turmoil in the financial markets will lead to rapid deal volume at lower valuations, with national banks looking to expand operations and regional banks seeking defensive mergers.

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