Is Treasury Helping PNC Swallow National City?

Representative Steven LaTourette’s letter to Secretary of The Treasury William Paulson on October 27th was far from congenial. In it, LaTourette, who represents northern Ohio’s 14th district, takes to task Paulson and Treasury Comptroller John Dugan over the proposed $5.2 billion sale of Cleveland’s National City Bank to PNC Financial Services of Pittsburgh. In a statement, the Republican Congressman said, “I am very concerned that the comptroller first deprived bailout money to National City Bank and then orchestrated its sale to his former client PNC.” House colleague Dennis Kucinich lined up with LaTourette noting the sale “is being consummated under duress, and it was precipitated and facilitated by a collusion of forces and entities that must be investigated, exposed, and if appropriate, prosecuted.” (Cleveland.com, October 27, 2008)

Dugan was a partner at Covington and Burley, a Washington, DC law firm specializing in bank regulation. PNC was a client of Dugan’s firm before his swearing in as Comptroller of the Currency in August, 2005. LaTourette’s letter expresses conflict of interest questions about Dugan’s involvement in the PNC-National City buyout financed with TARP (Troubled Asset Relief Program) funding.

Dugan issued an agitated reply to the allegations on October 28th saying “This suggestion is absolutely baseless, and I am astonished you would make such sweeping allegations without checking the facts… Any actions that I have taken in my current position have been intended to serve the interests of the national banking system that my agency supervises, and of which both National City and PNC are part, as well as the broader U.S. financial system. Past client associations have had no effect whatsoever on my activities on this or any other matter.” (Wall Street Journal, Real Time Economics, Oct. 28, 2008)

TARP regulations prohibit disbursements no greater than 3 percent of any one bank’s risk-weighted assets. PNC’s aid package from Treasury totaled $7.7 billion, or nearly 6 percent. LaTourete states “I have serious concerns that the TARP rules were incorrectly applied in this instance. In addition, LaTourette has also pointed out that PNC could get an additional $5.5 billion tax break from a little-known Treasury-IRS decision issued on September 30 while Congress was debating the bailout package. (WKYC, October 29, 2008)

So far, the transparency outlook on TARP is grim with little known about mechanisms governing its expenditures. Why has Treasury, one of the institutions whose oversight failure exacerbated the meltdown, been given broad authority to spend more taxpayer money? Instead of enhancing short-term liquidity for consumers and small businesses, TARP and tax code changes may in the end only accelerate bank buyouts of weakened competitors. Taxpayers simply don’t have much of an idea where $700 billion is going and trust, along with credit, is in very short supply.

PNC Might Choke on National City Acquisition

National City Shareholders Approve PNC Deal

Law firms sue PNC, National City over PNC’s NCB purchase

Congressmen to Treasury: Bailout money should not be used for acquisitions, executive bonuses

AIG Gets More Government Bailout Cash

Follow-Up

Rep. Steve LaTourette Seeks Help From President Bush to Stop National City Sale

National City-PNC Bank Deal Draws Criticism

National City’s Application Never Taken Seriously

~ by deadmanscurve on October 30, 2008.

Posted in Economic Curves, Hometown Curves
Tags: Cleveland, Comptroller of the Currency, Henry Paulson, John Dugan, Kucinich, LaTourette, National City, Ohio, PNC, TARP, Troubled Asset Relief Program