Fitch Upgrades National City to 'A+'; Affirms PNC at 'A+' on Merger Completion

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has upgraded the Issuer Default Ratings (IDRs) of National City Corporation (NCC) and its affiliates to `A+' from 'BBB+' and removed them from Rating Watch Positive. Fitch has also affirmed the 'A+' IDRs of PNC Financial Services Group Inc. (PNC) and its affiliates. The Rating Outlook is Stable for all entities. A complete list of ratings follows at the end of this release.

The ratings of NCC and its affiliates have been aligned with those of PNC and its affiliates following the merger of those two companies. Since National City Corporation ceased to exist as a separate legal entity upon consummation of the transaction, Fitch is withdrawing the issuer-level ratings of this entity, while ratings on this entity's outstanding debt remain in place.

Additionally, Fitch has upgraded the Support Ratings for all bank affiliates to '3' from '4', reflecting the importance of the combined franchise to the U.S. banking system. The combined PNC/NCC bank is now the fifth largest in terms of deposits, and has a significant market share in many key metropolitan areas in the eastern U.S.

PNC has fared relatively well during the credit/asset quality crisis facing the banking industry due to small subprime mortgage exposure and large syndicated bridge lending. PNC has taken mark to market charges against its inventory of commercial mortgage loans held for sale, though the exposure in this area is manageable. Like many of its peers, PNC has experienced rising losses in home builder and home equity credits, but the size of these books is manageable in relation to the overall organization, and loss rates are similar to or better than most peers at this ratings level.

While every merger has integration risks, PNC's track record with previous acquisitions has been solid. Recent targets, while considerably smaller than NCC, include some troubled institutions such as Riggs National Corporation. NCC's asset quality problems are well-identified and are relatively contained in a liquidating portfolio. PNC estimates lifetime losses and other adjustments against NCC's loan portfolio to be approximately 17.5% of the total. Some of these are part of NCC's existing reserves, some are being taken as adjustments at closing and some will be reflected in provisions over time. Fitch considers the loss estimate reasonable.

A key challenge facing the combined company is the management of parent company liquidity. Upon the closing of the merger, PNC is issuing $7.7 billion of preferred stock to the U.S. Treasury under the government's Capital Purchase Program. A PNC affiliate has also recently issued FDIC guaranteed debt under the government's Temporary Liquidity Guarantee program. A considerable amount of the proceeds of both the preferred and the guaranteed debt issuances, however, may be needed to rebuild regulatory capital at NCC's bank subsidiary. Fitch believes PNC has sufficient sources of cash at the parent to maintain acceptable levels of liquidity for the foreseeable future. However, the volume of near-term commitments and the large amount of preferred and trust preferred securities requiring debt service is relatively large. Fitch will monitor parent cash trends carefully in future surveillance.

Fitch has upgraded and withdrawn the following ratings:

National City Corporation

-- Long-term IDR to `A+' from 'BBB+';

-- Short-term IDR to 'F1' from 'F2';

-- Individual to `B' from 'C'.

Fitch has also affirmed and withdrawn the following ratings:

National City Corporation

-- Support at '5';

-- Support floor at 'NF'.

Additionally, Fitch has upgraded the following ratings:

PNC Bank N.A.

-- Support to `3' from '4';

-- Support floor to `BB-' from 'B'.

PNC Bank Delaware

-- Support to `3' from '4';

-- Support floor to `BB-' from 'B'.

National City Bank (Cleveland)

-- Long-term IDR to `A+' from 'A-';

-- Long-term deposits to `AA-' from 'A';

-- Senior debt to `A+' from 'A-';

-- Subordinated debt to `A' from 'BBB+';

-- Short-term deposits to `F1+' from 'F1'

-- Short-term IDR to `F1' from 'F2';

-- Individual to `B' from 'C';

-- Support to `3' from '4';

-- Support floor to `BB-' from 'B'.

National City Corporation

-- Long-term senior debt to `A+' from 'BBB+';

-- Long-term subordinated debt to `A' from 'BBB';

-- Preferred stock to `A' from 'BBB-'.

National City Credit Corporation

-- Short-term IDR to `F1' from 'F2';

-- Commercial paper to `F1' from 'F2'.

National City Capital Trust II

National City Capital Trust III

National City Capital Trust IV

National City Preferred Capital Trust I

Fort Wayne Capital Trust I

PFGI Capital Corporation

-- Trust preferred to `A' from 'BBB'.

National City Bank of Indiana

National City Bank of Kentucky

-- Long-term deposits to `AA-' from 'A';

-- Senior debt to `A+' from 'A-';

-- Subordinated debt to `A' from 'BBB+'.

National City Bank of Pennsylvania

-- Long-term deposits to `AA-' from 'A';

-- Subordinated debt to `A' from 'BBB+'.

National City Bank (Columbus)

-- Subordinated Debt to `A' from 'BBB+'.

The Provident Bank

-- Long-term deposits to `AA-' from 'A'.

Fitch has also affirmed the following ratings:

PNC Financial Services Group Inc.

-- Long-term IDR 'A+';

-- Short-term IDR 'F1';

-- Individual 'B';

-- Support '5';

-- Support floor 'NF';

-- Preferred stock 'A'.

PNC Funding Corp

-- Long-term IDR 'A+';

-- Long-term senior unsecured 'A+';

-- Long-term subordinated `A';

-- Short-term IDR 'F1';

-- Short-term debt 'F1';

-- Individual 'B';

-- Support '5';

-- Support floor `NF'.

PNC Bank N.A.

-- Long-term IDR 'A+';

-- Long-term deposits 'AA-';

-- Long-term senior unsecured 'A+';

-- Long-term subordinated `A';

-- Short-term IDR 'F1';

-- Short-term deposits 'F1+';

-- Short-term debt 'F1';

-- Individual 'B'.

PNC Bank Delaware

-- Long-term deposits 'AA-';

-- Long-term IDR 'A+';

-- Short-term IDR 'F1';

-- Short-term deposits 'F1+';

-- Individual 'B'.

Mercantile Bankshares Corporation

-- Long-term subordinated `A'.

Mercantile-Safe Deposit & Trust Company

-- Long-term senior debt 'A+'.

PNC Financial Corp.

-- Long-term subordinated `A'.

Riggs National Corporation

-- Long-term subordinated `A'.

PNC Capital Trust C, D, E

-- Trust preferred 'A'.

PNC Preferred Funding Trust I - III

-- Hybrid capital instruments 'A'.

National City Credit Corporation

-- Support '5'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.