Merc acts to ease PNC transition

Chairman and CEO Kelly assuring clients of `a very good partner'

October 25, 2006|By Laura Smitherman | Laura Smitherman,sun reporter

Mercantile Bankshares Corp., which has agreed to be acquired by Pittsburgh-based PNC Financial Services Group Inc., is working to assuage any fears about job losses and strained client relations stemming from the transition to new ownership.

Edward J. "Ned" Kelly III, Mercantile's chairman and chief executive, said in an interview yesterday that he has been meeting with commercial and wealth management clients to smooth the transition. The Baltimore-based bank also ran a full-page open letter to "friends of Mercantile" in The Sun over the weekend, saying the combination with PNC is "in the best interests of our shareholders, customers, employees and communities that we serve."

Mercantile has a lot riding on the deal, which is valued at $6 billion. Its stockholders are expected to get a premium on their shares, which have jumped more than 20 percent since the deal's announcement two weeks ago. And if the combination - which is subject to approval by regulators and Mercantile's shareholders - is derailed, the bank could be on the hook for a $225 million termination fee to PNC.

"Our shareholders are very happy," Kelly said. "The reaction in the community has been one of understanding. Obviously, as I've said, there has been some regret but also a recognition that PNC will be a very good partner."

Banks often struggle to retain customers and key employees during a transition. While officials have acknowledged that the PNC deal will mean some job losses among Mercantile's 3,600 employees, they have emphasized that the branching networks of the two banks don't overlap, so those losses might be minimal. Meanwhile, PNC has set aside millions in retention bonuses for Mercantile employees, PNC spokesman Brian E. Goerke said, declining to give specifics.

`The right thing'

"This is a fact of life in these mergers," said Bert Ely, a banking consultant in Alexandria, Va., "and Kelly is doing exactly the right thing, and I'm sure PNC is also concerned about this."

Mercantile, Maryland's largest independent bank, announced yesterday that its third-quarter profit rose less than 1 percent to $71.6 million from $71 million a year ago. Earnings a share were unchanged at 57 cents a share, as the number of shares outstanding increased, primarily in connection with this year's acquisition of James Monroe Bancorp this year.

The bank's loan portfolio increased 9 percent during the past year to an average $12.4 billion, with James Monroe contributing about a third of the growth. That acquisition also helped push deposits up 7 percent to $12.6 billion. Mercantile now has more than $17.6 billion in assets.

The bank also became one of the latest financial institutions to disclose a loss - $1 million - related to the implosion last month of Amaranth, a Connecticut hedge fund that lost about $6 billion from bad bets on natural gas.

Others burned

Others that invested in Amaranth include Goldman Sachs, Morgan Stanley and Deutsche Bank. Mercantile shares fell 11 cents yesterday to $44.46.

laura.smitherman@baltsun.com

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