Jan 17 - Standard & Poor's Ratings Services today said its ratings on PNC
Financial Services Group (A-/Stable/A-2) are not immediately affected by
the company's fair fourth-quarter earnings, which were in line with our
Standard & Poor's-adjusted revenues of $3.9 billion and adjusted pretax
earnings of $862 million were 11% and 3% higher, respectively, than
fourth-quarter 2011. Net interest income rose from the prior year because of
the RBC (USA) acquisition, organic loan growth, and lower funding costs.
Noninterest income was up across all categories, except residential mortgage,
where an increase in reserves for mortgage putbacks (a contra-revenue item)
dampened results because of more aggressive request activity from Fannie Mae
and Freddie Mac. We expect revenues to increase modestly in 2013 as a result
of the expanding loan book and strong corporate customer growth in the
southeast U.S., though low interest rates will continue to pressure results.
PNC has agreed to amend consent orders with regulators related to foreclosure
abuses, which resulted in a $70 million charge for the period. It also took a
$45 million goodwill impairment charge for its residential mortgage banking
segment. Although costs associated with legacy acquired assets may not
disappear, we expect a reduction in those costs, combined with cost
efficiencies recently gained, to mean lower costs overall in 2013.
Credit metrics continued to improve in the fourth quarter, with material
declines in nonperforming loans, net charge-offs, and delinquencies, while
reserve coverage to nonperforming loans rose. PNC said its estimated Basel III
Tier 1 common ratio was 7.3% at the end of the period. We expect the company
to continue to build capital in 2013 to meet its 8.0%-8.5% Basel III Tier 1
common goal by the end of the year.
Overall, PNC's performance for the quarter was supportive of the current
ratings. The rating outlook on PNC is stable, reflecting the company's
relatively stable operating performance, which is within our expectations. We
continue to monitor the risks associated with acquired assets, including legal
and regulatory troubles, as well as its credit performance amid a sluggish