PNC Financial Services, which has limited participation in the mortgage business, may be wading back into the game with its purchase of National City Corp.

But don't bet on PNC using the National City platform to expand its mortgage presence much. In a conference call, PNC executives said they expect to see high cumulative losses on National City's mortgage and home equity portfolios, suggesting that PNC will exit "low return asset classes" and instill a "moderate risk culture" at the combined firm.

PNC estimates that losses on NatCity's remaining $4.5 billion non-conforming mortgage portfolio will total 43.5%. The remaining $10 billion third-party originated home equity portfolio is expected to see a loss ratio of 52.5%. In the all stock deal, PNC has agreed to pay $5.2 billion, or $2.23 per share, for NCC.

The price represents a discount of almost 20% to NCC's share price the day before. PNC highlighted the deposit franchise, which will make it the fifth largest bank by deposits in the nation, in explaining the deal. PNC largely exited the first lien mortgage space in 2001 when it sold its mortgage subsidiary to Washington Mutual.

However, PNC currently operates a mortgage business through a joint venture relationship with Wells Fargo and heavily markets HELOCs to its bank customers. Both banks are mid-sized players in commercial mortgages.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.