US bail-out cash buys rival bank

National City is heavily weighed down by bad mortgage debt.

A US bank has become the first to use some of the $700bn (£440bn) government bank bail-out to purchase a rival.

PNC Financial Services Group is buying National City for $5.6bn - making PNC the US's fifth largest bank by deposits with the fourth most branches.

Cleveland-based National City needed to be rescued after being heavily weighed down by bad mortgage debt.

As part of the bail-out, the US Treasury aims to buy stakes in banks in return for capital.

And while recipients can use some of the investment for acquisitions, the aim of the controversial $700bn move was also to free up lending.

More consolidation expected

Banks have been struggling since the middle of 2007 with rising mortgage defaults and a credit crisis that has virtually frozen inter-bank lending and severely restricted lending to consumers.

The move by Pittsburgh-based PNC to buy National City is expected to be the first of several deals that results in consolidation in the US banking sector.

"PNC now becomes a major force in retail [banking]," said Bart Narter, of consulting firm Celent. "It just doubled in size for not a lot of money."