PNC Bank Corp. expects to have a debt capital markets division up and running by November.

Richard Tito, president and chief executive of PNC Capital Markets Inc., a subsidiary of the Pittsburgh banking company, said PNC is nearing approval from the Federal Reserve for so-called Tier 2 powers, which would let it underwrite and deal in certain corporate securities.

A final on-site examination by the Fed is scheduled Monday, he said. The process should take two to three weeks.

"We needed to act more like an investment bank," Mr. Tito said. "So we had to ask for those powers."

PNC Capital is known for its extensive municipal bond originations and trading desk. Its new capital markets division would offer asset-backed and high-yield trading, research, and sales in 1999. By 2000, Mr. Tito said, he expects an expanded commitment in mortgage trading.

PNC Bank bolstered its capital markets business in August with the buyout of J.J.B. Hilliard, W.L. Lyons Inc., a leading municipal underwriter and trader in the Southeast. Hilliard Lyons brings to PNC Capital a large retail sales branch network.

PNC Capital also has been scouring the investment banking world for experienced bankers. The search recently produced two hirings, of Allen Boyle and D.J. Baudhuin, who were named managing directors, and of William Melrose, who was named vice president.

Mr. Boyle, who worked most recently at Bear, Stearns & Co., is to head PNC Capital's high-yield trading desk. Mr. Baudhuin, formerly of BankAmerica Corp., is to run asset-backed trading. Mr. Melrose, a fixed- income salesman for HSBC Securities Inc., is to fill the same role at PNC Capital.

Mr. Tito said the new section 20 division will be split between Philadelphia and Pittsburgh. It will compete regionally or "inside the footprint" of PNC Bank, he said.

That means debt securities underwriting and trading for largely middle- market firms-with annual sales of less than $250 million-in the Northeast and Middle Atlantic states. By tapping its own customers, PNC Capital hopes to gain a strong presence in energy, mining and metals, health care, and technology. The new division will not underwrite equity, Mr. Tito said.

Asked whether PNC Capital is rethinking its decision to enter the taxable-debt arena, considering the recent turmoil in high-yield and equity markets, Mr. Tito said, "I guess we feel fortunate that we had not been in these markets earlier." "We're using it as an opportunity to build our staff," he added.

PNC has high hopes for its underwriting business. Mike Michael, head of corporate banking, said in May that the banking company hopes to boost noninterest revenue from its current 45% share to 50% by 2000.

In the spring, PNC paid $47 million for a 4.9% stake in Friedman, Billings, Ramsey Group Inc., an Arlington, Va., investment bank. The deal gave PNC Capital an "exclusive" affiliation.

Mr. Tito and PNC seem to be keeping expectations reasonable. He said the unit's start-up would be successful if in a few years PNC Capital Markets Inc. had turned into a multiregional investment bank and full-service debt shop.

"We don't expect to be the next Goldman Sachs," he said.

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