Takeover by PNC Heralds Fall of a Cleveland Institution

John C. Dugan, the U.S. comptroller of the currency, whose office oversees National City, had told the company not to count on an investment from the government's $700 billion recovery package, according to people familiar with the matter. Instead, the government gave PNC $7.7 billion to help it buy National City. The Cleveland company, fearing it could not survive the stigma of the government's rejection, then agreed to the deal, said the sources, who spoke on condition of anonymity because they were not authorized to comment publicly.

If the government had agreed to invest in National City, "we would not be having this conversation," Jackson said.

Bill Mahnic, professor of banking and finance at Case Western Reserve University in Cleveland, predicted that PNC would lay off as many as one-third of the National City employees in its home city, particularly in senior management and processing and operations staff.

PNC hopes to complete the deal by the end of the year, and Jackson said it plans to announce any changes after that. "The negative impact will be on the uncertainty and the trauma that it brings to the life of the employees of National City," he said.

The bank's travails have hit hard in Cleveland. National City has been a mainstay of civic life, supporting cultural institutions and lending expertise to community development groups, as well as sponsoring events such as the city's annual Home and Garden Show, which calls itself the largest in North America. The bank has spent about $20 million a year on philanthropy.

Mahnic said PNC would probably support only a handful of those organizations. "PNC has a good record in altruism," he said, "but obviously not being headquartered here, they're going to cut back from the level that National City donated money to."

The combined company would be the fifth-largest U.S. bank in terms of deposits. PNC has been steadily expanding in the Washington area, acquiring Riggs Bank in 2005 and Baltimore-based Mercantile last year. Earlier this week, it said it would open 41 mini-branches and install 180 ATMs in Giant Food stores by the end of 2009.

Long before it jumped into the subprime market, National City had earned a reputation for funding small development projects and residential programs proposed by the city's many neighborhood community development groups. Its executives sat on boards, and the bank made unconventional loans available to residents who were carefully screened for their ability to pay.

"Their involvement at that level was very well thought through and conservatively underwritten," said Eric Hodderson, president of Neighborhood Progress Inc., a community development group. "They were a bank operating in a traditional framework."

National City was hardly the only mortgage outfit to invest heavily in subprime loans. All over Cleveland, lenders from across the country were pouring money into communities that not long before had complained about being redlined.

Much of that money, from National City and other banks, found its way to Slavic Village, the childhood home of Rep. Dennis J. Kucinich (D), which local officials call ground zero for the foreclosure crisis. For decades, the neighborhood, which abuts a steel mill in the city's southeast, was a struggling working-class community with an aging population and few new residents. But Slavic Village underwent a dramatic change beginning in the late 1990s as the tide of mortgage money flooded the area with new homeowners, lifting prices to unprecedented heights. Thousands of the neighborhood's small wooden homes turned over, with investors selling to new buyers at multiples of their purchase price, sometimes within months, and often after making only cosmetic repairs.

"The deals became toxic immediately," said City Council member Anthony Brancatelli, who for 17 years headed the Slavic Village Development Corp. "What should have been $20,000 or $30,000 homes became $80,000 or $90,000 homes with toxic loans."