Kelly leaving PNC to run Carlyle unit

Ex-Mercantile chief guided acquisition

June 12, 2007|By Laura Smitherman | Laura Smitherman,Sun reporter

Banking executive Edward J. "Ned" Kelly III, who as head of Baltimore's Mercantile Bankshares Corp. oversaw its sale to PNC Financial Services Group, is giving up his post at the combined company for a job at Washington-based Carlyle Group, one of the world's largest private equity firms.

Kelly has been tapped to help run a new Carlyle unit that will invest in financial services, including banks and insurance companies. He said the firm approached him in recent months, and that he has known Carlyle founder David M. Rubenstein since they both worked on Walter F. Mondale's failed presidential bid more than two decades ago.

"It's a unique opportunity and makes perfect sense for me," Kelly said yesterday in an interview. "Carlyle is a market-leading, established firm with a global presence and great people."

Kelly's jump comes just three months after Pittsburgh-based PNC completed its $6 billion acquisition of Mercantile. Kelly, who was chairman and chief executive of Mercantile, had accepted a position as vice chairman at PNC, and signed a lucrative employment and retirement agreement.

Industry observers said Kelly's departure doesn't come as a surprise and likely won't derail an integration process that is well under way.

Stuart Greenberg, a banking consultant in Baltimore, said Kelly's "golden resume," including stints at a major law firm and as a top investment banker at JPMorgan Chase & Co., make him a good fit for Carlyle.

"What was he going to do? He sold the bank, and it's no longer his show to run," Greenberg said. "He wants to be in a place where the action is. Comparing a private investment firm like Carlyle to a run-of-the-mill commercial bank, it's like night and day."

Carlyle Group manages more than $58 billion in assets. Begun in 1987, the firm has grown to nearly 800 employees in 18 countries and has a reputation for being politically connected. Former President George H.W. Bush served as a senior adviser at the firm until 2003, as did former Secretary of State James A. Baker until 2005. Carlyle's current chairman is Louis V. Gerstner, the former chairman of International Business Machines Corp.

Came here in 2001

Kelly said he got to know Rubenstein, a Baltimore native who now sits on the Johns Hopkins University board of trustees, while helping to prepare Mondale for presidential debates in 1984. Kelly was at the law firm Davis Polk & Wardwell in Washington then. Kelly said he later worked with Carlyle on some investments in the late 1980s. In the mid-1990s, he joined JPMorgan and became head of the global financial institutions group. He came to Baltimore, and to Mercantile, in 2001.

Over the years, Kelly has rankled some in Baltimore's business circles. He reportedly clashed with H. Furlong Baldwin, who ran Mercantile for 25 years and hand-picked Kelly as his successor. And some critics have decried the loss of Mercantile - the largest bank headquartered in Maryland and one that long catered to Baltimore's elite - to an out-of-town institution like PNC. Kelly had repeatedly said he didn't intend to sell the bank.

But others have hailed Kelly's leadership at Mercantile. The bank's assets nearly doubled during his tenure, and under the deal he helped negotiate with PNC, Mercantile shareholders were paid a premium of nearly 30 percent. As for the impact of his leaving PNC, though, analysts say it should be minimal.

"He obviously was a great manager, and any time you lose someone of that caliber, it's too bad," said Scott Siefers, an analyst at Sandler O'Neill & Partners in New York. "But in terms of the success of the Mercantile transaction, this doesn't have any significance. They have a good integration history and a good team on the ground."

Some turnover is expected in any transaction, especially one the size of the Mercantile-PNC deal. Other senior executives who have left Mercantile include Chief Operating Officer Alexander T. Mason, Chief Administrative Officer Michael Paese and Stephen Heine, a senior vice president.

The bulk of any expected job cuts among rank-and-file workers remain to be seen, Siefers said. Mercantile accounts and branches will be transferred to PNC in September, and all of the accounting and computer systems will be consolidated. That's when many of the back-office staff reductions are expected.

$1.4 million bonus

At Carlyle, Kelly will be a managing director of the new financial services group with David K. Zwiener, former president of property and casualty operations at Hartford Financial Services Group, an insurance company where Kelly also sits on the board.

Under Kelly's employment agreement with PNC, he will keep his guaranteed bonus for 2007 of $1.4 million and about $6.2 million worth of restricted PNC stock.

The agreement also entitled Kelly, who considered working for PNC out of Washington, to reimbursement for the cost to move there, including the option to have the company buy his home at its appraised value. But, Kelly said yesterday, he never moved. And though he will be working in Washington for Carlyle, he said he may keep his home in Baltimore.

laura.smitherman@baltsun.com

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