Mercantile to be sold

Job outlook unclear

PNC pledges charitable role

October 10, 2006|By M. William Salganik | M. William Salganik,Sun reporter

Mercantile Bankshares Corp, which owns the venerable Mercantile-Safe Deposit & Trust Co. and smaller banks in the region, announced yesterday that it has agreed to sell itself to Pittsburgh-based PNC Financial Services Group Inc. in a deal valued at $6 billion.

The deal would end the independent existence of a bank that has been a pillar of the Baltimore establishment since the Civil War, discreetly tending to the assets of the elite.

It will mean some job loss among Mercantile's 3,600 employees, although bank officials said they haven't decided where the cuts will come, as well as the end of the blue-chip Mercantile nameplate. But PNC said it was strongly committed to the Baltimore community, pledging a $25 million charitable contribution to take up the slack from Mercantile's gifts.

FOR THE RECORD - An article yesterday about the sale of Mercantile Bankshares Corp. misstated the level of assets at which bank mergers were found to be most successful. A study by Haluk Unal, professor of finance at the University of Maryland Smith School of Business, found that the most successful mergers, in terms of return for shareholders and bondholders, were those that created a bank with more than $100 billion in assets.
The Sun regrets the error.

Edward J. "Ned" Kelly 3rd, Mercantile's chairman, president and CEO, said he had not set out to sell the bank and had rejected many offers in his 5 1/2 -year tenure.

Although the bank's future had long been a topic of speculation in the city's business community, Kelly had always denied that Mercantile was for sale. For example, when Mercantile sold its headquarters tower and leased back space two years ago, Kelly said, "If I were going to sell the firm, I would not have just signed a 10-year lease."

Yesterday he said PNC's CEO James E. Rohr approached him just within the past few weeks, initiating discussions that led to a "compelling" offer.

"Looking at what it might take to take Mercantile to the next level vs. what we were able to get from this transaction ... we believe that it was a sensible thing to do," Kelly said during a conference call from Pittsburgh. Still, Kelly said in a subsequent interview, "As our own board thought about it, there was always an element of sadness about this."

He said Mercantile hadn't solicited other bids but had a good sense of the value of the company from previous offers.

The sale came as little surprise to banking analysts, who have watched a procession of local banks get snapped up by regional banks and regional banks get swallowed by national banks.

Kenneth R. Stanton said that for several years, in his banking classes at the University of Baltimore's Merrick School of Business, he had predicted that Mercantile, the state's largest remaining independent bank, would be sold - in some cases, surprising students who worked at the bank.

Midsize banks such as Mercantile, he said, are in a "transitional range."

"Either you keep on going and swallow somebody else" or wait for an attractive offer to sell to a larger bank, he said.

While the sale of Mercantile means the end of an influential local institution, civic leaders said they expected PNC to assume an active community role.

Mercantile's "leaders have been some of the major corporate players for the City of Baltimore and for the region," Donald C. Fry, president of the Greater Baltimore Committee, said yesterday. "I would anticipate that PNC would want to have that same prominence and that same presence that Mercantile and its executives have had over the years."

Mercantile made $5 million in grants and donations last year to nearly 1,500 community organizations, according to the bank. Major gifts included $1 million to Catholic Charities for a new Our Daily Bread Employment Center and an expanded My Sister's Place, a day program for homeless women and children.

PNC introduced itself to the community by promising to contribute $25 million to Mercantile's fund that is part of the Baltimore Community Foundation - a fund that has distributed $27 million in grants over the past 25 years but has never held more than $9 million in assets.

PNC and Mercantile spokesmen said the combined institution expected to realize $100 million in cost savings by 2008, with about half of that coming from job cuts. While they gave no immediate details, there should be negligible impact on bank branches because there is almost no overlap.

"Most customer-facing people are going to survive this transaction," Kelly said.

Much of the rest of the savings is expected to come from such areas as professional services and software, though Kelly said he hoped that a growing combined bank would be able to absorb many people in positions that would be duplicated.

Mercantile employees - many of whom were off for the Columbus Day holiday - received e-mails yesterday morning at about the time the deal was announced, said Janice M. Davis, a Mercantile spokeswoman. In addition, she said, managers who could be reached were told by telephone or in person. Officials will be meeting with groups of employees over the next day or two.

Mercantile has $17 billion in assets and operates 240 branches in Maryland and surrounding states. In addition to Mercantile Bank & Trust, the parent company's holdings include, among others, Annapolis Bank and Trust, Citizens National Bank, Farmers & Mechanics Bank and Westminster Union Bank.

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