Bank of New York Mellon Corp. is in final-stage discussions to acquire a unit of PNC Financial Services Group Inc. for close to $2.5 billion, said people familiar with the matter.
The unit is PNC Global Investment Servicing, a Wilmington, Del.-based unit that provides back-office processing for financial advisers, fund managers and brokers.
PNC has been shopping the business for about three months, these people said. A deal with Bank of New York Mellon could be announced as soon as next week. The talks were at a sensitive stage, the people familiar with the matter warned, and an announcement could still be delayed or scuttled.
PNC is eager to do a transaction to help raise money to pay down $7.6 billion in government Troubled Asset Relief Program funds, said one of these people. PNC chief executive James Rohr has made TARP repayment a goal for 2010.
PNC is expected to get a "meaningful" premium above the unit's book value, said one person familiar with the transaction. PNC and Bank of New York Mellon declined comment.
PNC outperformed many regional banks during the financial crisis, buying ailing rival National City Corp. in a 2008 deal that elevated the Pittsburgh-based institution to the nation's fifth-largest bank by assets. It took the TARP funds to assist with the National City deal.
Unlike many of its TARP-aided rivals, though, PNC has taken a slower approach to returning the government money, saying that it made sense to be cautious in case the economy took longer to recover.
It told regulators late last year that its preference was to pay back TARP with earnings and gains from its holdings in money manager Blackrock Inc. (BLK), according to a person familiar with the conversations. It also wanted to handle the situation without new stock offerings that could dilute the value of existing shares.
But no option is off the table for paying back TARP, said another person familiar with the bank.
Regulators have pushed other bailout recipients to conduct share sales as a sign of strength. Berkshire Hathaway Chairman Warren Buffett recently said in a television interview that the U.S. "forced" Wells Fargo & Co. (WFC) to do a stock offering as part of its TARP payback. Mr. Buffett is a major Wells shareholder.
The PNC unit currently for sale employs 4,450 employees, representing 8% of PNC's 55,820-person work force. Until July 2008 the unit was known as PFPC. It oversees $1.8 trillion in assets for about 75 million shareholder accounts, keeping books and records, managing cash and serving as a custodian for fund managers' portfolios.
It earned $63 million in profits for 2009, the smallest of any PNC business segment, down from $122 million in 2008.
The larger PNC earned $2.4 billion in 2009, up from a profit of $914 million in 2008.
For Bank of New York Mellon the acquisition fits with its strength as a custodial bank handling assets for other banks and endowments, mutual funds and pension plans. Bank of New York Mellon has shed its retail banking business. It repaid $3 billion in TARP funds last year.