Diminishing returns from investment-grade loans prompted PNC Bank Corp.'s announcement last week that it would exit national corporate lending.

Maurice H. Hartigan 2d, executive vice president and deputy manager of corporate banking at PNC, said Friday that the decision to get out of the business was part of an ongoing review of wholesale lending.

PNC said it would leave the large corporate lending business except in its core market, which includes Pennsylvania, Delaware, Kentucky, New Jersey, and Ohio. The retreat comes as the Pittsburgh banking company is stepping up its emphasis on fee-generating services to corporate clients.

As part of its earnings announcement last Thursday, PNC also said it would quit lending to national health-care firms. An existing $6.5 billion portfolio of such loans are to be sold during the next two years, the company said.

The announcement was widely anticipated by the loan market during the last several months. One banker in the business said PNC began to drop out of the bidding process for loans in mid-1998.

"If you don't have a strong product set it's hard to compete," said another banker. "It's hard to sell out of the region."

On Friday, company officials acknowledged that PNC had been retreating from the business for several months. They said the decision came as part of a reevaluation begun three years ago.

"We want to "de-leverage our balance sheet (and) consolidate it where we can," Mr. Hartigan said.

In 1998, PNC's syndicated lending business garnered less than a 1% market share. The bank led 57 domestic loans, worth $7.82 billion, according to Thomson Financial Securities Data.

PNC said the retreat was designed to "exit capital-intensive, lower- return segments of its lending business and reduce reliance on spread income."

Mr. Hartigan said the move would primarily affect companies in the Fortune 500 that were without a significant presence in PNC's region. Customers deemed "long-standing" will continue to be served by the bank.

"In that business our returns have been satisfactory," he said. "But we're not able to see an environment which will improve the returns in that business in the future."

Mr. Hartigan said that PNC's exit from health-care lending would also be limited to companies outside its territory.

PNC was dealt a blow last year when a multimillion-dollar loan to the Allegheny Health, Education, and Research Foundation defaulted when the foundation filed for bankruptcy protection. Mr. Hartigan said the experience with Allegheny was only a small factor in the banking company's decision to leave the health-care lending business.

"It's certainly something we reflect upon and use as a constructive assessment of the strength of the industry," he said. "Has it dominated our decision because of one name? No. Do we use a composite of experiences to test our strategy? The answer is certainly."

Mr. Hartigan said PNC will remain on the national loan scene in two sectors where it has long-term relationships and expertise: the gambling business and transportation and leasing.

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