PNC plans to allow for a long goodbye

After shareholder vote, Mercantile to ease into transition

February 26, 2007|By Paul Adams | Paul Adams,SUN REPORTER

Shareholders of Mercantile Bankshares Corp. are expected to vote overwhelmingly tomorrow in favor of selling the bank to the Pittsburgh-based PNC Financial Services Group, all but erasing another blue-chip nameplate from Baltimore's skyline and introducing a new player to an already competitive local banking market.

The vote is one of the last remaining obstacles to completing the $6 billion cash and stock deal next month, creating the nation's 11th largest bank in terms of deposits. When it's over, PNC officials promise a bank with free ATM transactions, more product offerings and easier Web access than existed under Mercantile's banner.

But it could be months before many of Mercantile's 3,600 employees find out whether they will have employment with their new owner. And customers won't get their first real look at how PNC performs until at least fall, when the Pittsburgh bank expects to complete the biggest transition it has undertaken since its founding in 1852. PNC operates in eight states and the District of Columbia, making it a powerful and growing force in the Mid-Atlantic region.

"They've got to do a good job, and they know it," said David Danielson, president of Danielson Capital, a bank consulting firm in Vienna, Va. "There's going to be a lot of competitors in the local area looking for any slip-up."

The slow pace of the transition runs counter to PNC's acquisition of scandal-tainted Riggs National Corp. in 2005. In that case, PNC transferred accounts and took down Riggs signs the day the deal closed.

By contrast, Mercantile signs, letterhead and accounts will look the same as always after the deal closes in March, PNC officials said. The reason is partly due to the larger size and complexity of the Mercantile acquisition, as well as the bank's desire to give employees more time to train on new systems and communicate with customers about the changes.

"We want to do it the right way," said Brian Goerke, a PNC spokesman. "We want to take the proper amount of time and make sure everybody is prepared on the front line and that we communicate with customers."

The schedule leaves plenty of time for Mercantile to say a long goodbye to Baltimore, where it has been known as the conservative caretaker of blue-blood money since the Civil War. Its clients included the Pratts, Abells, Peabodys, Hopkinses and other family names now identified with major city streets, institutions and statuary.

In the past 25 years, Mercantile has expanded to become a local retail banking giant, snatching up smaller regional banks and running them through a complex affiliate structure. Civic leaders and industry officials say Mercantile will leave nothing in its wake that enjoys quite the same status as a locally headquartered bedrock of the financial community. Many of the city's other locally grown banks have long since been acquired by out-of-town institutions.

"Mercantile was a grand banking franchise that goes back so long that for Baltimore's sake, it's a real shame that they will no longer exist," said Hugh Mohler, a former executive vice president of Mercantile who runs Bay National Bank.

Analysts say the outcome of tomorrow's vote is a foregone conclusion, especially given the 28 percent premium PNC is offering based on the value of Mercantile's shares at the time the deal was announced in October. Two shareholder advisory groups have recommended investors vote in favor.

The deal will give Mercantile shareholders 0.4184 shares of PNC stock and $16.45 in cash for each Mercantile share. Mercantile shares closed down 7 cents to $48.04 per share in trading Friday, while PNC shares lost 20 cents to close at $75.50.

With the shareholder vote out of the way, the path should be virtually clear for PNC and Mercantile to complete the deal by early to mid-March, bank officials said. The Federal Reserve approved the acquisition this month, and the Justice Department and state regulators in Maryland and Delaware are expected to complete their respective reviews in the coming weeks.

Analysts say PNC has a mostly good track record when it comes to transitioning customers to their system after an acquisition. Despite some small hang-ups, the Riggs acquisition went off pretty smoothly, said Gary B. Townsend, an analyst with Friedman Billings Ramsey in Arlington, Va.

Mercantile's multi-bank holding structure will make this integration more complicated, he said. Mercantile operates about a dozen affiliate banks, each with its own executives and board of directors. All will eventually be absorbed into PNC's corporate structure.

PNC officials say they expect affiliate CEOs to remain, and regulatory filings show that millions of dollars have been set aside to pay bonuses for those who stay during the uncertainty. Mercantile CEO Edward J. "Ned" Kelly III will be a vice chairman of PNC and a handful of his top executives have been offered high-level positions.

Mercantile officials declined to comment for this article, referring questions to PNC.

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