Financial services company PNC Financial Services Group, Inc. (PNC) announced Tuesday that it has received regulatory approval to redeem the $7.6 billion of preferred shares held by the U.S. Treasury. The company sold the preferred shares to the Treasury against the bail-out funds it received in October 2008 under the governments Troubled Asset Relief Program or TARP Capital Purchase Program.
In a statement, chairman and chief executive officer, James Rohr said, "With signs of an improving economic environment and stabilizing financial system, we believe now is the appropriate time for us to redeem the preferred shares held by the U.S. Treasury. As a result, we are pleased to have reached an agreement with our regulators to return the taxpayers' investment in PNC."
"These strategic actions are expected to improve the quality of our capital and position us for further growth. Collectively, we believe these actions are in the best interests of our shareholders, customers and employees," Rohr added.
PNC also announced plans to offer $3.0 billion of its common stock to raise additional capital. The underwriters for the offering are expected to be granted an over-allotment option to buy up to an additional about $450 million of common stock, exercisable within 30 days from the date of the offering. J.P. Morgan Securities, Inc. and Morgan Stanley & Co., Inc. will act as joint bookrunning managers for the offering.
Earlier in the day, PNC agreed to sell its Global Investment Servicing, Inc., or GIS, business to Bank of New York Mellon Corp. (BK) for about $2.31 billion in cash. The purchase price includes the purchase of $1.57 billion of stock and repayment of intercompany debt from PNC. The transaction is currently anticipated to close in the third quarter of 2010.
PNC recently disclosed its intention to repay the $7.6 billion it received in TARP funds, and the GIS units sale and the common stock offering is part of the agreement with the regulators to repay the government aid.
However, in the event that the GIS deal is not completed by November 1, 2010, PNC has agreed with regulators to raise additional common equity between about $700 million and $1.6 billion, either through the sale of other assets or the issuance of additional common stock.
The closure of the GIS deal is expected to see PNC reporting an after-tax gain of about $.5 billion and an increase in Tier 1 common capital of about $1.6 billion following the release of $1.1 billion in capital that is primarily related to goodwill and other intangible assets.
Following the completion of the GIS deal, the common stock offering as well as the TARP repayment, the company's Tier 1 common capital is projected to see a net increase of about $4.3 billion.
After the TARP payment, the preferred shares warrant will continue to be held by the Treasury, which will enables it to purchase up to about 16.9 million shares of PNC common stock at an exercise price of $67.33 per share until its expiration on December 31, 2018.
Further, the company also intends a debt offering by offering senior notes in an aggregate amount of $1.5 billion to $2.0 billion, in order to provide additional liquidity in connection with the redemption of preferred shares. The company added that the debt offering is subject to market conditions.
The $700 billion TARP was set up last year to prop up the U.S. financial system after big bets on mortgage-related assets pushed many institutions toward collapse. Following the collapse of Lehman Brothers Holdings Inc. (LEHMQ.PK) and several other events that rocked the financial sector last year, some of the major financial companies received fresh capital from the government in return for preferred stock and warrants to purchase common shares.
By repaying TARP funds, banks will be able to function independently and without government scrutiny as well as any unnecessary restrictions on bonus payments and salaries to executives. Further, the banks have reportedly received concerns from clients about being under the government's thumb.
Last month, PNC Financial reported a profit for the fourth quarter compared to a loss last year, as revenues surged on higher than expected cash collections for impaired commercial loans. Net income was $1.01 billion or $2.17 per share, compared to a net loss of $269 million or $0.77 per share in the prior-year quarter. Quarterly revenues climbed to $5.08 billion from $1.68 billion a year ago.
PNC closed Tuesday's regular trading session at $54.65, down $2.22 or 2.17% on a volume of 9.56 million shares, higher than the three-month average volume of 4.26 million shares. In the past 52-week period, the stock has been trading in a broad range of $16.20 to $58.94.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.