Details in today’s P-G and a few weeks ago in the WSJ show just how sweet the PNC deal to buy National City was. As it turns out, because of a “holliday” of a law that prevents companies from buying other companies just to post the other companies losses on its tax records, PNC is buying National City for more-or-less nothing. If you don’t understand that, here’s the analogy. Let’s say I made 500,000 dollars last year (I wish). I would owe about a third of that in taxes. Let’s say my friend Jill, a stock broker, lost 500,000 dollars last year, she still holds these now low price (one might guess, undervalued) stocks, but she lost 500,000. If I were able to marry Jill, we could jointly declare that we made ZERO in 2008. This means I save 160 thousand or so in taxes. Essentially I (PNC) married Jill (National City) for 133,000. So at the end of the day, I spent nothing and got some undervalued stock.
The 5 billion (of the 5.6 billion dollar total price) that PNC will now be able to write off is part of your 700 Billion dollar bailout at work. Wether you agree with the bailout conceptually or not, it is good to see that part of a bailout targeted at New York’s Wall Street will find it’s way down Pittsburgh’s Penn Avenue.