The latest major reshaping of the US retail banking
landscape – PNC’s acquisition of the struggling National City for
$5.6 billion – was more straightforward than JPMorgan’s firesale
purchase of Washington Mutual and the legalistic complexities of
Citigroup and Wells Fargo’s tussle over Wachovia. But it is
nonetheless being seen as a peg on which to hang wider issues
concerning the future of the US banking industry.

Top five banks by depositsPNC will become the fifth-largest US bank by deposits
following the National City purchase, which will add $97.8 billion
in deposits to PNC’s existing $76.8 billion. The combined
institution would also become the fourth largest US bank by
branches, with 2,750 nationwide.

Controversially, PNC announced that it will sell $7.7 billion in
equity to the US Treasury as part of the reformulated Troubled
Assets Relief Programme (TARP) in order to help finance the
deal.

The US Treasury’s adjustments were seen as bringing the US in
line with the more well-received proposals unveiled by the UK,
France and Germany subsequent to the initial TARP announcement. But
while helping banks to increase lending is high on the agenda of
each governmental plan, US institutions such as Citigroup and
JPMorgan are considering using the capital injections to make
acquisitions. “It does present the possibility of taking advantage
of opportunities that might otherwise be closed to us,” said
Citigroup’s chief financial officer, Gary Crittenden, in a
statement.

A further twist is a change to US taxation rules that is likely
to allow both Wells Fargo and PNC to recoup much of their outlay in
their respective purchases of Wachovia and National City. A change
to the Internal Revenue Service Code announced on 30 September
makes it possible for firms to write off taxes against losses taken
from companies they acquire. Wells Fargo, which said it would have
to write down $74 billion in losses at Wachovia, believes “the bulk
of that will be tax-sheltered, tax deductible”, according to chief
financial officer, Howard Atkins.

Republican congressman Steven LaTourette said that PNC would
benefit from its purchase of National City, getting a tax break of
$5.5 billion from the deal, a figure close to the $5.6 billion that
the bank is paying for National City.

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It remains unclear whether the US government believes the
stabilising influence of further acquisitions is necessary at the
expense of increased lending, given that it will likely further
concentrate US retail banking power in the hands of a select few
‘superbanks’. The likelihood of some institutions simply hoarding
money is seen as another risk.

The extent to which the Treasury will enforce such desires is
causing consternation among many US bankers, who have until 14
November to decide whether to participate in the Capital Purchase
Programme (CPP).

The American Bankers’ Association (ABA) has said that the
programme’s goal of taking stakes in healthy banks both large and
small is confusing both the industry and the public alike. “Almost
ninety-five percent of banks in this country remain
well-capitalised. Since that time, many banks have been contacted
by regulators and urged, sometimes forcefully, to participate in
the CPP,” wrote Edward Yingling, CEO of the ABA, in a letter to US
Treasury Secretary, Hank Paulson.