Is PNC on Corporate Welfare?

by James & Miel on October 24, 2008 · 0 comments

Hi All,

Just scanning the headlines recently. Two stories caught my eye. First, Pittsburgh based PNC financial services group is buying troubled National City Mortgage for approximately 5.2 billion dollars (1). Second I noted that, PNC is accepting nearly $7.7 billion from the Treasury’s economic rescue funds (1).

The connection between the two has not been missed by the press (1, 2). Its being called the first “bailout merger” and PNC’s staff have been proudly quoted as lauding the federal government’s role in overseeing and approving the buyout plans (1).

While more responsible or thorough journalists may not go this far – make no mistake about it dear reader, this looks an awful lot like PNC is taking corporate welfare. Corporate welfare is problematic for at least two reasons. First, it means that the federal treasury – not merit, wisdom or effort – dictates who will survive or fail economically. For example, Georgia’s Alpha Bank and Trust just failed (1). Why does PNC deserve assistance when a smaller company like Alpha Bank and Trust does not?

Second, the PNC/National City merger may not address a root cause of the recession – unwillingness to lend. Mergers tend to take a while before the kinks are worked out, so PNC may in fact want to limit their market exposure by reducing their lending, not increasing it. The deal may defeat the purpose of the rescue package to begin with. Which was to improve economic fundamentals through increased credit availability.

There are a number of other problems with corporate welfare, but being that we have several accounts and a safety deposit box with PNC, its somewhat disheartening to see they are now in the treasury’s soup line.

Best,

James

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