Going, Going, Gone: National City Bank

On Monday, September 29, I posted the following comment, "Who is next on the so-called "hit parade?" My guess is National City Bank (NCC) out of Cleveland, Ohio, which could happen within the week (probably sooner rather than later)." Well, it was later. On October 24, National City Bank was taken over by PNC Financial (PNC).

Karl Denninger from "The Market Ticker" had some interesting observations about the National City and Wachovia acquisitions. He states that what is interesting about the acquisition by PNC is that it acquired NCC for $5.2 billion in PNC stock or at a discount of approximately 70% from the value of its shareholder equity. On September 30th, according to NCC's financial statements, the firm had shareholder equity of $17.2 billion on its balance sheet. NCC was not alone. Remember Wachovia. In its quarterly report, dated September 30th, it claimed a balance sheet net asset figure of $50 billion. Yet just a very short time later (literally two days later), the board of Wachovia approved a deal for Wells Fargo to buy the bank for $14.8 billion in Wells Fargo stock. Both firms of course defend such treatment and, in fact, the entire banking system, including Ben Bernanke, believe that "fair value" accounting is to blame for much of the current financial crisis. But if, in fact, fair value accounting outrageously understates the value of assets, why is it that the boards of both National City and Wachovia accepted these deals and voted in favor of them? Certainly the boards do not believe that their companies are worth what their balance sheet proclaims, or they would not have agreed to any such transaction. National City and Wachovia show why bank's financial statements are not trusted!