UPDATE 1-Ohio lawmaker queries Paulson on National City sale

(Adds PNC comment, penultimate paragraph)

By Emily Kaiser and Paritosh Bansal

WASHINGTON/NEW YORK, Nov 18 (Reuters) - The sale of National City Corp NCC.N to PNC Financial Services Group Inc (PNC.N) came under fire from an Ohio lawmaker on Tuesday, who asked the U.S. Treasury Department to reconsider a decision to deny the bank funding under the government's bailout plan.

At a House Financial Services committee hearing on the government's $700 billion Troubled Asset Relief Program, Ohio Rep. Steven LaTourette said the Office of the Comptroller of the Currency refused to accept an application from Cleveland- based National City to access the fund.

"National City Bank is one of the only -- I think the only -- top 25 banks in the country that is not permitted now to participate in the TARP program," LaTourette said. "It was never my understanding that the TARP program was designed to have the government pick winners and losers."

Treasury Secretary Henry Paulson said he would be "very happy to discuss" the matter with John Dugan, head of the OCC.

"I have great confidence in his judgment and I believe based upon generally what I know he made the right decision," Paulson said. "But I am perfectly happy to talk about it with him some more."

National City shares dropped after the exchange between LaTourette and Paulson and were down 14 cents, or 6.4 percent, at $2.06 in afternoon trading.

Pittsburgh-based PNC agreed on Oct. 24 to buy National City for about $4.8 billion in stock, using funds from TARP.

"A bank that has existed since the American Civil War, survived the Great Depression, can't survive eight weeks of the TARP," LaTourette said.

LaTourette said National City's Tier 1 capital ratio was 11 percent and the bank had $18 billion in cash. In April, National City received a $7 billion infusion from private equity firm Corsair Capital and other investors.

"They raised $7 billion and they are one of the best capitalized banks in the country and you guys wouldn't even take an application (for TARP money)," LaTourette said. "My question is, why did you deny assistance to National City Bank that has 29,000 employees in nine states?"

PNC spokesman Fred Solomon said: "PNC believes that its combination with National City will be stronger and better positioned to provide for the credit and other banking needs of businesses and consumers across our markets."

National City could not be reached immediately for comment. (For more M&A news and our DealZone blog, go to www.reuters.com/deals) (Editing by Andre Grenon)