Debra Speyer In The News - The American Banker. July 9, 2003

PNC's Pact Giving Fuel To Would-Be Plaintiffs

Robert Julavits

Last month's deferred prosecution agreement with the Justice Department could cost PNC Financial Services Group Inc. much more than the $115 million of fines and restitution it agreed to pay. The deal, in which the Pittsburgh company "accepts and acknowledges" responsibility for what the government called improper use of three off-balance-sheet entities, provides a gold mine of evidence for plaintiff's and class-action attorneys, several lawyers said. "This is a road map that shows exactly what PNC did, when they did it, and how they did it," said Debra Speyer, a Philadelphia investor-rights lawyer and former prosecutor for the National Association of Securities Dealers. Tom Ajamie, a partner with Schirrmeister Ajamie LLC in Houston, called the agreement a "severe" one for PNC. "They've been charged with deceiving investors by moving problem loans to off-balance-sheet structures, where people don't know about them." A spokesman for PNC would not comment. Last year's regulatory troubles put PNC at the top of speculators' takeover lists, but the Justice Department settlement may give potential suitors pause. The deal stipulates that if the subsidiary PNC ICLC Corp., the unit at the heart of the settlement, "sells or merges all or substantially all" of its business operations during the term of the agreement, the buyer would be bound by the agreement as well. The settlement addresses $762 million of troubled loans and venture capital investments that the company transferred to "certain off-balance-sheet entities" in 2001. Bank regulators first intervened early last year by demanding that PNC move the assets back on to its balance sheet, an act that forced it to lower its 2001 earnings by $155 million. It entered a supervisory period with the Federal Reserve Bank of Cleveland and Office of the Comptroller of the Currency last July and agreed to make a number of changes to its risk management and governance procedures. A Justice Department official said that PNC has been very cooperative and agreed to "real, internal reforms," which led the department to defer any criminal prosecution for 12 months to give the company time to comply. Ironically, lawyers say, that cooperation could cost PNC dearly

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