Paulson: National City properly denied money

By The Associated Press

U.S. Treasury Secretary Henry Paulson rejected a northeast Ohio congressman's claim Tuesday that struggling National City Corp. was improperly denied funding from the government's $700 billion bailout.

Challenged on the issue Tuesday by U.S. Rep. Steven C. LaTourette at a Capitol Hill hearing on the bailout, Paulson said he felt the right decision had been made in collaboration with Comptroller of the Currency John Dugan, National City's primary regulator.

"I have great confidence in John Dugan," Paulson said. "I'll be happy to discuss it with him."

"I believe, based on generally what I have heard, that he made the right decision."

Cleveland-based National City is facing a $5.6 billion takeover by PNC Financial Services Group of Pittsburgh, which will use bailout money for part of the deal. LaTourette said National City was the only one of the nation's 25 biggest banks that wasn't offered bailout money.

LaTourette and other Ohio lawmakers said the sale was an example of the government unfairly picking winners and losers.

He asked Paulson to consider an application by National City for some $4 billion in federal money that would help it avoid the need to be bought by PNC. LaTourette, a Republican, said he wants to discuss National City's future with Dugan, Paulson and a representative of the White House.

National City showed confidence from the private sector when it raised $7 billion last spring, LaTourette said during the hearing. "They are one of the best capitalized banks in the country and you guys wouldn't even take an application?" he asked.

Paulson said National City's capitalization wasn't the only issue.

"In my experience, I have seen institutions that have capital at least at certain ratios but where the market loses confidence in them and they fail or are about to fail because there are questions about the quality of the assets and the quality of the mortgages they hold."

He said the bailout money should "not be used to prop up failing banks or banks that might fail."