UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 2, 2003
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
THE PNC FINANCIAL SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER 1-9718
PENNSYLVANIA 25-1435979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE PNC PLAZA
249 FIFTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222-2707
(Address of principal executive offices, including zip code)
(412) 762-2000
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE
On June 2, 2003, PNC ICLC Corp. ("PNCICLC"), an indirect non-bank subsidiary of
The PNC Financial Services Group, Inc. ("PNC"), entered into a Deferred
Prosecution Agreement (the "Deferred Prosecution Agreement") with the United
States Department of Justice, Criminal Division, Fraud Section (the "Department
of Justice"). A copy of the Deferred Prosecution Agreement is attached hereto as
Exhibit 99.1, and is incorporated by reference herein. The description of the
Deferred Prosecution Agreement as set forth herein is qualified in its entirety
by reference to the actual text of the agreement. PNC has issued a press release
relating to the Deferred Prosecution Agreement which is attached hereto as
Exhibit 99.2 and incorporated herein by reference. PNC has also prepared a
Question and Answer sheet which is attached hereto as Exhibit 99.3 and
incorporated herein by reference.
Pursuant to the terms of the Deferred Prosecution Agreement, the United States
will file a complaint in the United States District Court for the Western
District of Pennsylvania charging PNCICLC with conspiracy to commit securities
fraud, in violation of Title 18, United States Code, Section 371. The Department
of Justice will recommend to the Court that the prosecution of PNCICLC be
deferred for a period of twelve (12) months in light of PNCICLC's exceptional
remedial actions to date and its willingness to acknowledge responsibility for
its behavior, continue its cooperation with the Department of Justice and other
governmental regulatory agencies, demonstrate its future good faith conduct and
full compliance with the securities laws and generally accepted accounting
principles and consent to the establishment of a restitution fund and the
assessment of a monetary penalty as further described below. The Department of
Justice has further agreed that if PNCICLC is in full compliance with all of its
obligations under the Deferred Prosecution Agreement, the Department of Justice
will seek dismissal with prejudice of the complaint within 30 days of the twelve
month anniversary of the agreement and at such time the agreement shall be
terminated.
Under the terms of the Deferred Prosecution Agreement, PNCICLC accepts and
acknowledges responsibility for its behavior in connection with the PAGIC
transactions and agrees to cooperate fully with the Department of Justice in its
ongoing investigation of others. PNCICLC has agreed to pay a total of $90
million to establish a fund for victim restitution, including for the settlement
of any pending shareholder securities litigation, payable within 30 days of the
date of the agreement. The fund will be administered by former Federal Judge
Arlin Adams. PNCICLC has also agreed to pay a monetary penalty of $25 million to
the United States Treasury within 10 days of the date of the agreement.
As previously disclosed, the PAGIC transactions were the subject of a July 2002
consent order entered into between PNC and the United States Securities and
Exchange Commission (the "SEC") and the subject of a separate written agreement
that was entered into between PNC and the Federal Reserve. The Deferred
Prosecution Agreement brings closure to the main governmental investigations
applicable to PNC and its affiliates stemming from the 2001 transactions, though
such investigations continue as to others, with respect to which PNC has
committed its full cooperation. The Deferred Prosecution Agreement was entered
into by the Department of Justice in light of PNCICLC's exceptional remedial
actions to date, and its willingness to acknowledge responsibility for its
behavior in connection with the PAGIC
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transactions through the undertakings set forth in the agreement and through its
continued cooperation with the government regarding these matters. The agreement
has also been designed to avoid the imposition of adverse collateral
consequences relating to PNC's important banking, brokerage, asset management,
fiduciary and processing businesses, which businesses had no improper
involvement in the conduct associated with PNCICLC and the PAGIC transactions.
While the Deferred Prosecution Agreement has been entered into by PNCICLC with
the objective of avoiding material adverse financial consequences for PNC or its
affiliates beyond the funding responsibilities related to the restitution fund
and the monetary penalty called for under the agreement, PNC may incur
additional expenses and collateral costs associated PNCICLC's entry into the
agreement, the impact of which can not be fully assessed at this time.
As previously disclosed, there is a putative class action lawsuit pending
against PNC relating to the PAGIC transactions. There can be no assurance as to
the impact or effect that PNCICLC's entry into the Deferred Prosecution
Agreement may have on the outcome of this lawsuit or related claims. PNC
believes that it has substantial defenses against such claims, including through
the assertion of claims against other third parties. The $90 million that
PNCICLC has committed to fund for victim restitution under the Deferred
Prosecution Agreement will be available to satisfy PNC shareholder claims,
including for the settlement of the pending shareholder securities law
litigation.
The Statement of Facts attached to the Deferred Prosecution Agreement sets forth
the government's factual predicate for the complaint that has been filed in
connection with the Deferred Prosecution Agreement. PNCICLC has acknowledged and
accepted responsibility for its behavior as set forth in the Statement of Facts
by entering into the Deferred Prosecution Agreement and by, among other things,
the extensive remedial actions that it has taken to date, its continuing
commitment of full cooperation with the Department of Justice and other
governmental agencies and its agreement to establish a restitution fund and the
other undertakings it has made in the Deferred Prosecution Agreement. PNCICLC
has agreed that if future criminal proceedings were to be brought in the event
of any breach by it of the Deferred Prosecution Agreement, PNCICLC would not
contest the admissibility of the Statement of Facts in any such proceedings.
Consistent with PNCICLC's obligations under the Deferred Prosecution Agreement,
PNCICLC is permitted to raise defenses and/or assert affirmative claims in civil
and regulatory proceedings relating to the matters set forth in the Statement of
Facts. In the Statement of Facts knowledge has been attributed to PNCICLC by the
government under corporate attribution and collective knowledge doctrines, and
subject to PNCICLC's obligations under the Deferred Prosecution Agreement,
PNCICLC may assert that knowledge referred to therein may have been limited to
only selected individuals associated with PNCICLC or to the collective knowledge
of selected individuals. Any such defenses, claims or limitations are by no
means meant to diminish PNCICLC's acknowledgement of responsibility relating to
such matters.
PNCICLC did not act alone in connection with the PAGIC transactions, and PNC has
agreed to cooperate fully with the government in connection with its ongoing
investigation of others. Such parties share a large part of the responsibility
for the actions taken in connection with the PAGIC transactions, and PNC has
preserved its rights to pursue claims relating to the PAGIC matters against
other third party actors. PNC strongly disapproves of any and all improper
conduct that
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occurred in connection with the PAGIC matters, and the PNC Board and management
team have made it clear that PNC will have zero tolerance for such conduct by
PNC related parties or others.
PNC does not anticipate that the entry by PNCICLC into the Deferred Prosecution
Agreement will have any impact on PNC's dividend policy.
PNC's previously announced stock repurchase program, under which it is
authorized to repurchase up to 35 million shares of common stock through
February 29, 2004, continues in effect. Under this program, PNC has purchased
4.4 million shares in 2003 to date at a total cost of $193 million. The extent
and timing of share repurchases during the remainder of the year will depend on
a number of factors including, among others, market and general economic
conditions, regulatory capital considerations, alternative uses of capital and
the potential impact on PNC's credit rating. Under applicable regulations, as
long as PNC remains subject to its written agreement with the Federal Reserve
Bank of Cleveland, it must obtain prior regulatory approval to repurchase its
common stock in amounts that exceed 10 percent of its consolidated net worth in
any 12-month period. A total of 4.7 million common shares have been repurchased
under this program from inception through the date hereof.
FORWARD-LOOKING STATEMENTS
This report contains, and other statements that PNC may make may contain,
forward-looking statements with respect to PNC 's outlook or expectations for
earnings, revenues, expenses, capital levels, asset quality or other future
financial or business performance, strategies or expectations, or the impact of
legal, regulatory or supervisory matters on PNC's business operations or
performance. Forward-looking statements are typically identified by words or
phrases such as "believe," "feel," "expect," "anticipate," "intend," "outlook,"
"estimate," "forecast," "project," "position," "target," "assume," "achievable,"
"potential," "strategy," "goal," "objective," "plan," "aspiration," "outcome,"
"continue," "remain," "maintain," "seek," "strive," "trend," and variations of
such words and similar expressions, or future or conditional verbs such as
"will," "would," "should," "could," "might," "can," "may," or similar
expressions.
PNC cautions that forward-looking statements are subject to numerous
assumptions, risks and uncertainties, which change over time. Forward-looking
statements speak only as of the date they are made, and the Corporation assumes
no duty and does not undertake to update forward-looking statements. Actual
results could differ materially from those anticipated in forward-looking
statements and future results could differ materially from historical
performance.
In addition to factors mentioned elsewhere in this report or previously
disclosed in PNC's SEC reports (accessible on PNC's website at www.pnc.com and
on the SEC's website at www.sec.gov), the following factors, among others, could
cause actual results to differ materially from those anticipated in
forward-looking statements or from historical performance:
(1) changes in political, economic or industry conditions, the interest rate
environment or financial and capital markets, which if adverse could result in:
a deterioration in credit quality, increased credit losses, and increased
funding of unfunded loan commitments and letters of
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credit; an adverse effect on the allowances for credit losses and unfunded loan
commitments and letters of credit; a reduction in demand for credit or fee-based
products and services; a reduction in net interest income, value of assets under
management and assets serviced, value of private equity investments and of other
debt and equity investments, value of loans held for sale or value of other
on-balance sheet and off-balance sheet assets; or changes in the availability
and terms of funding necessary to meet PNC's liquidity needs; (2) relative and
absolute investment performance of assets under management; (3) the
introduction, withdrawal, success and timing of business initiatives and
strategies, decisions regarding further reductions in balance sheet leverage,
the timing and pricing of any sales of loans held for sale, and PNC's inability
to realize cost savings or revenue enhancements, or to implement integration
plans relating to or resulting from mergers, acquisitions, restructurings and
divestitures; (4) customer borrowing, repayment, investment and deposit
practices and their acceptance of PNC's products and services; (5) the impact of
increased competition; (6) how PNC chooses to redeploy available capital,
including the extent and timing of any share repurchases and investments in PNC
businesses; (7) the inability to manage risks inherent in PNC's business; (8)
the unfavorable resolution of legal proceedings or government inquiries; the
impact of increased litigation risk from recent regulatory and other
governmental developments; and the impact of reputational risk created by recent
regulatory and other governmental developments on such matters as business
generation and retention, the ability to attract and retain management,
liquidity and funding, (9) the denial of insurance coverage for claims made by
PNC; (10) an increase in the number of customer or counterparty delinquencies,
bankruptcies or defaults that could result in, among other things, increased
credit and asset quality risk, a higher provision for credit losses and reduced
profitability; (11) the impact, extent and timing of technological changes, the
adequacy of intellectual property protection and costs associated with obtaining
rights in intellectual property claimed by others; (12) actions of the Federal
Reserve Board; (13) the impact of legislative and regulatory reforms and changes
in accounting policies and principles; (14) the impact of the regulatory
examination process, the Corporation's failure to satisfy the requirements of
written agreements with regulatory and other governmental agencies, and
regulators' future use of supervisory and enforcement tools; and (15) terrorist
activities and international hostilities, including the situations surrounding
Iraq and North Korea, which may adversely affect the general economy, financial
and capital markets, specific industries, and the Corporation.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
The exhibits listed on the Exhibit Index on page 7 of this Form 8-K are filed
herewith.
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
THE PNC FINANCIAL SERVICES GROUP, INC.
(Registrant)
Date: June 2, 2003 By: /s/ William S. Demchak
-----------------------------
William S. Demchak
Vice Chairman and
Chief Financial Officer
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EXHIBIT INDEX
99.1 Deferred Prosecution Agreement between PNC ICLC Corp.
and the United States Department of Justice
99.2 Press Release dated June 2, 2003
99.3 Question and Answer Sheet
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