About $200 million coming the way of executives of National City Corp. after a government-assisted takeover by PNC Financial Services Group's is likely to pass legal muster, analysts and compensation experts believe.
As disagreeable as the so-called "golden parachute" compensations for officials of troubled National City may be to some critics of the banking companies' $5.6 billion merger deal, it's unlikely they would be affected by new Treasury Department rules designed to limit such payouts in mergers using government "bailout" funds, the experts said.
PNC, which had hoped to complete the merger by Dec. 31, is obligated to pay the money because of agreements that National City executives had in place if their employer was acquired.
As reported Wednesday by the Tribune-Review, a new securities filing Tuesday indicated that at least 21 -- and as many as 50 -- executives are covered by such agreements at troubled National City, whose stock has dropped about 85 percent this year, hurt by years of subprime lending.
A major reason that the Treasury Department would not object to the payments is that Pittsburgh-based PNC --not Cleveland-based National City -- will be the recipient of the government assistance facilitating the deal, said Gerard Cassidy, an analyst at RBC Capital Markets of Portland, Maine.
The funds are being provided under the Treasury Asset Relief Program, known as TARP, which was set up under the government's $700 billion financial-rescue plan.
"NatCity hasn't received any such funding, so I don't believe there will be any restrictions on the severance packages," said Cassidy, who follows both banks.
"Additionally, these severance packages were signed years ago. The executives have a contract, and I don't believe the Congress can break these contracts because they are already in place."
Such deals are common practice on Wall Street, and the $200 million due to executives is not that large in comparison to those at other companies, said Laurence Wagman, of James F. Reda & Associates, a New York-based compensation consulting firm.
Wagman said he also believes there will be no government objections to the National City packages, but in the face of growing public pressure, companies might start to pull away from such deals in the future.
"The size of some of these payouts have been quite extraordinary -- and that's gotten Congress' attention, it's gotten the media's attention, and it's gotten shareholders' attention, so there has been a lot of movement to discourage this," he said.
"These deals are common, but are they a good thing? Every situation speaks for itself," Wagman said.
Contacted yesterday, a National City spokesman had no comment on the new filing. Treasury representatives could not be reached.
The PNC acquisition drew new opposition this week from Rep. Dennis Kucinich, D-Cleveland, who said the deal might endanger thousands of jobs in northern Ohio and distort competition in U.S. banking.
Kucinich wrote a letter to the Federal Reserve opposing the takeover of National City, which is Ohio's largest bank. PNC hasn't said when it will discuss job cuts as it seeks $1.2 billion in pretax cost savings from the merger, said Fred Solomon, a spokesman for the Pittsburgh-based bank.
Kucinich and Rep. Steven LaTourette, a Republican from suburban Cleveland, who has criticized the transaction, discussed the merger Tuesday with regulators. The two lawmakers met with such officials as Neel Kashkari, who heads the Treasury's bank equity-purchase program, and Timothy Long, chief national bank examiner for the Office of the Comptroller of the Currency.
Neither LaTourette nor Kucinich could be reached for comment.
PNC has agreed to sell $7.7 billion in preferred shares and $1.1 billion in warrants to the U.S. Treasury after regulators urged National City to seek a merger partner.
Among the nation's 20 largest banks, National City and Wachovia Corp. are the only ones that aren't participating in the Treasury's effort to boost capital and spur lending. Wells Fargo & Co., the seventh-largest U.S. bank, is acquiring Wachovia, the fourth-largest lender.
"Treasury is using the people's money to cause the failure of (National City), with a detrimental effect on Main Street Cleveland," Kucinich said in his letter.
Companies can re-write compensation contracts to prevent golden parachutes when they are receiving bailout funding, said Cassidy.
"I would expect this to go through," he said. "Certainly there would be criticism by politicians and such, but this is standard procedure that many companies have written into their senior-executive contracts in case of a change of ownership," Cassidy said.
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