

Says investigators should look at the the role of John Dugan, Comptroller of the Currency, in the sale of National City to PNC

Updated at 7 p.m.

WHAT THEY ARE SAYING

What Ohio members of Congress had to say about the National City sale:

"Friday was a sad day for Cleveland. Even though National City supported the rescue bill passed by Congress, management's decision to invest in the risky subprime market, coupled with Bush administration deregulation, put the bank in such a weak position it could not qualify for funds. If another bank had not purchased National City, I am afraid the job loss would have been even more severe." Sen. Sherrod Brown, Avon Democrat

"I have been warning for weeks that the congressionally approved bailout, which I vigorously opposed, would give the Treasury Department the power to pick winners and losers. By helping PNC and denying help to National City, the Treasury Department has proven my point." Rep. Dennis Kucinich, Cleveland Democrat

"It is horrifying to me that [the Treasury] Department and Comptroller John Dugan now control the fate of banks throughout the nation, and that federal 'rescue' money is being used to prop up some banks so they can purchase other banks that have been denied funding. This decision will effectively kill a Civil War-era bank from Cleveland, costing thousands of jobs." Rep. Steven LaTourette, Bainbridge Township Republican

"The Treasury Department and Bush administration are doing something very nefarious with their buddies on Wall Street. They are harming our good banks. They are rewarding the wrongdoers."

Rep. Marcy Kaptur, Toledo Democrat

"We are all very concerned about what is happening with National City. The Treasury should not be able to wield its authority to benefit one bank at the expense of another and there should be an immediate investigation into whether this was the case with PNC and National City. It is also critical that Congress remain vigilant in its oversight over the Treasury Department during every step of this process. Most immediately, we must do all that we can to ensure that the jobs at National City are secure."

Rep. Betty Sutton, Copley Township Democrat

"Obviously, the decision was made that they didn't meet the needs of the financial community in their present shape. That was the reason for the takeover."

Rep. Ralph Regula, Navarre Republican

WASHINGTON -- Rep. Steven LaTourette wants the Treasury Department and Congress to investigate whether Comptroller of the Currency John Dugan steered $7.7 billion of taxpayer bailout money to his former client PNC so it could buy National City Bank.

LaTourette noted that before being sworn in as the nation's primary banking regulator in August 2005, Dugan represented Pittsburgh-based PNC as an attorney in the Washington law firm Covington and Burling.

"I am very concerned that the comptroller first deprived bailout money to National City Bank and then orchestrated its sale to his former client PNC," LaTourette said in a news statement. "The officials at PNC have made it very clear that they were only able to buy National City because they got a $7.7 billion handout from the federal government."

A Treasury Department spokeswoman did not respond on Monday to requests for comment on Dugan's ties to PNC, or to LaTourette's request for an investigation.

LaTourette, a Bainbridge Township Republican, and other Ohio members of Congress who opposed the $700 billion financial industry bailout package that Congress approved earlier this month are raising questions about the use of tax dollars for PNC's fire-sale purchase of National City.

Toledo Democratic Rep. Marcy Kaptur, who represents half of Lorain County, described the move as "nefarious," and says she believes that the Bush administration is using the bailout program to "concentrate banking power with their friends on Wall Street" and create cartels.

"By Washington and Wall Street cooperating to drive down the book value on banks across this country at the same time as they use taxpayer money to subsidize the wrongdoers, they are concentrating our financial system to an unheard-of level and destroying good banks in the process," said Kaptur.

Cleveland Democrat Dennis Kucinich also called for Congress to investigate the deal, noting the sale "is being consummated under duress, and it was precipitated and facilitated by a collusion of forces and entities that must be investigated, exposed, and if appropriate, prosecuted."

Rep. Betty Sutton, a Copley Township Democrat who supported the bailout, said she was "very concerned" about the National City bank deal, and called for congressional oversight of the Treasury Department as it oversees the bailout.

"Treasury should not be able to wield its authority to benefit one bank at the expense of another, and there should be an immediate investigation into whether this was the case with PNC and National City," Sutton said.

LaTourette, a member of the House Financial Services Committee, wrote letters on Monday to Treasury Secretary Henry Paulson and House Financial Services Committee Chairman Barney Frank requesting probes of the situation.

Frank, a Massachusetts Democrat, said he spoke with LaTourette on Monday and agreed to familiarize himself with the matter. Frank plans an oversight hearing in November on the financial rescue plan, "and this could clearly be a part of it," he said.

"This was not what we had in mind when we passed the rescue plan," Frank said when asked about Treasury picking winners and losers. "I'm going to look into it."

LaTourette said the Treasury Department money that went to PNC marked the first time the federal government took an equity stake in a regional bank. According to LaTourette, about a week before National City was forced to sell itself to PNC, Dugan told National City Chief Executive Peter Raskind that his institution shouldn't expect federal bailout money. LaTourette cited reports in the Wall Street Journal that claimed Dugan was "heavily involved" in the sale of National City to PNC.

LaTourette also observed that Paulson and Dugan gave PNC more bailout money than it was eligible to receive under the terms of the federal program. He said the bailout law stipulated that the Treasury Department could only give a bank money equivalent to 3 percent of its risk-weighted assets, while PNC got an amount closer to 6 percent.

"This was supposed to be a $700 billion rescue package, and instead it's being used to kill a Cleveland bank and kill local jobs," LaTourette said. "Some may argue that National City was already gravely ill, but make no mistake, Paulson and Dugan put the nail in the coffin."

The complaint from LaTourette could carry weight because unlike Democratic congressional leaders, he is a Republican raising an issue about a Republican administration's stewardship of the bailout.

In 2005, LaTourette successfully got the federal government to reverse another decision that could have harmed Northeast Ohio after he demonstrated that the Pentagon overstated the cost of keeping payroll clerks and accountants at a Cleveland center. Rather than shut down the center as initially proposed, the Pentagon wound up expanding the Defense Finance and Accounting Service operation in Cleveland.

At least two other Ohio members of Congress who backed the bailout said National City's fate was unfortunate but unavoidable given the bank's subprime mortgage losses.

Efforts to reach Rep. John Boehner of Southwest Ohio, the Republican House leader, were unsuccessful.

Plain Dealer Washington Bureau Chief Stephen Koff contributed to this story.