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How it affects competitors: PNC hoping for a windfall

Wednesday, July 18, 2001

By Pamela Gaynor, Post-Gazette Staff Writer

PNC Financial Services Group was quick to claim the hometown advantage yesterday over soon-to-be rival Citizens Financial, the Rhode Island bank that is taking over Mellon Financial Corp.'s retail banking business.

PNC Chairman James Rohr issued a statement saying the proposed sale "leaves only one major, full-service bank headquartered in Pennsylvania -- and that's PNC."

When North Carolina's First Union Corp. took over Philadelphia homegrown CoreStates in 1998, PNC "grew deposits by $1 billion" there, Rohr said, and expanded its reach to small and mid-sizedcompanies.

Rohr called Mellon's decision to jettison the 130-year-old, bread-and-butter banking unit "surprising," and said PNC was "committed" to its regional retail banking business.

Analysts weren't surprised by Mellon's move, however, and some said they wouldn't be surprised to see PNC eventually do the same thing -- albeit in a less dramatic fashion.

Mellon and many other large, so-called money center banks for years have been de-emphasizing retail banking -- with its costly overhead of bricks-and-mortar branches and countless small transactions -- in favor of fee-based businesses such as asset management.

Curiously, after several years of raising fees for its retail banking services and demanding higher minimum balances for free checking -- moves that typically deter all but more affluent customers -- PNC lately has begun courting smaller retail accounts.

Just last month, it lowered the minimum balance for free checking to $200 from $1,000, for example. In an advertising campaign late last year, it tried to woo low-balance Mellon customers who were paying a fee for an ATM card. Earlier in 2000, it offered $150 bounties to bring in select retail customers.

Those moves would make it "easy to assume" that PNC is interested in building its retail banking operations, said David Uhryniak, an analyst who follows banking for Pittsburgh-based mutual fund giant Federated Investors.

Nonetheless, he said PNC's long-term strategy was much the same as Mellon's.

"In order to do the [retail] business right, you have to focus on it and pursue it aggressively. I don't think either PNC or Mellon wants to do that" over the long-term.

While Uhryniak doesn't doubt that PNC is lusting at the prospect of luring defecting Mellon depositors, he still believes that PNC's long-term strategy will be geared toward further expanding its fee-based businesses. The only difference between PNC and Mellon, he added, is that PNC's shift away from retail will likely be more gradual than Mellon's and more likely to occur through shrinkage than an outright sale.

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