June 12, 2012 / 2:43 PM / 5 years ago

TEXT-Fitch affirms PNC Financial Services Group

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June 12 - Fitch Ratings affirmed PNC's long-term Issuer Default
Rating (IDR) at 'A+' and short-term IDR at 'F1' in recognition of its solid
earnings and capital levels, strong liquidity profile, and manageable asset
quality deterioration to date. The Rating Outlook is Stable. A complete list of 	
ratings follows at the end of this release.	
	
PNC's ratings affirmation reflects its solid earnings profile, good capital and 	
improving asset quality trends. PNC's earnings performance has remained solid 	
through the financial crisis, and compares well to regional peers. Earnings 	
benefit from a solid margin, diversified sources of noninterest income, and 	
generally tight expense controls. Fitch notes that some of PNC's relatively 	
stronger margin stems from purchase accounting, which Fitch calculates as adding	
36bps to the margin in 1Q'12. This is comparable to other regional banks whose 	
margins also benefit from purchase accounting accretion as a result of large 	
acquisitions completed during the crisis.	
	
Fitch's rating action also incorporates ongoing earnings pressure from various 	
sources including mortgage repurchase costs, litigation accruals, and regulatory	
related costs, all impacting PNC's overall return metrics. PNC recently 	
disclosed a significant increase to its mortgage repurchase reserves of 	
approximately $350 million reflecting increased repurchase demands from Fannie 	
Mae. Although this was well outside of Fitch's expectations for run-rate 	
repurchase costs and it will materially impact 2Q'12 results, PNC's Outlook 	
remains Stable as its earnings profile is expected to still remain above peer 	
averages over the long-term. 	
	
PNC's capital profile is considered good, though Fitch acknowledges that PNC's 	
pro forma Basel III capital ratios are adversely impacted more than other 	
regional bank peers given its large book of sub-investment grade securities and 	
its investment in BlackRock. PNC estimates its pro forma Basel III Tier 1 common	
ratios to be between 8% and 8.5% by year-end 2013. Fitch views this level of 	
capital as acceptable in light of PNC's risk profile and earnings track record 	
and capacity. Fitch further assumes that PNC will manage capital conservatively 	
in the meantime, in light of Basel III implications on capital levels. 	
	
PNC has reported improving asset quality metrics since the peak of problems in 	
late 2009/early 2010. Fitch expects that PNC's asset quality ratios will slowly 	
improve over the near term. PNC's portfolio of TDRs is smaller than regional 	
peer averages, and PNC has ample reserve coverage for the modified loan book.	
	
The company is exposed to some tail risk in its residential lending portfolio, 	
especially within its large home equity book. Performance to date has been good,	
likely attributed to the large percentage of home equity lines, presumably 	
paying very modest monthly interest only payments. Given the low interest rate 	
environment and expectation of rates remaining low through 2014, Fitch does not 	
expect to see home equity borrowers face meaningful interest rate resets when 	
their draw periods come to an end over the next several years. 	
	
PNC's approximately $10 billion of interest only home equity lines that will 	
begin to reset to fully amortizing loans in 2015 bears monitoring. Fitch expects	
that this might represent increased credit risk in the home equity book as 	
borrowers are faced with higher monthly payments. That said, Fitch feels that 	
PNC is positioned well to manage this risk and absorb potential losses. The 	
company's outlook remains Stable, supported by its solid underwriting, solid 	
capital profile, and loan loss reserves.	
	
The balance sheet is liquid as loan/deposit ratios remains lower than peers. PNC	
has access to a diversified array of funding sources. Fitch believes PNC has 	
sufficient sources of cash at the parent to maintain acceptable levels of 	
liquidity for the foreseeable future.	
	
The Rating Outlook for PNC is Stable. Fitch currently views upgrade potential 	
for PNC as a low likelihood amidst a challenging economic environment, increased	
regulatory headwinds, and weak interest rate environment. If PNC were to report 	
meaningful deterioration in asset quality, coupled with weaker profitability 	
metrics, or more aggressive capital management could lead to a negative rating 	
action, although Fitch views a downgrade as unlikely.	
	
Fitch affirms the following ratings with a Stable Outlook:	
	
PNC Financial Services Group Inc.	
--Long-term IDR at 'A+';	
--Short-term IDR at 'F1';	
--Viability at 'a+';	
--Support at '5';	
--Support floor at 'NF';	
--Preferred stock at 'BBB-'.	
	
PNC Bank N.A.	
--Long-term IDR 'A+';	
--Long-term deposits at 'AA-';	
--Viability at 'a+';	
--Subordinated at 'A';	
--Short-term IDR at 'F1';	
--Short-term deposits at 'F1+';	
--Short-term debt at 'F1';	
--Support at '5';	
--Support floor at 'NF'.	
	
PNC Funding Corp 	
--Long-term IDR at 'A+';	
--Senior unsecured at 'A+';	
--Subordinated at 'A';	
--Short-term IDR at 'F1';	
--Short-term debt at 'F1';	
--Support at '5';	
--Support floor at`NF';	
--Long-term debt guaranteed by TLGP at 'AAA'.	
	
Mercantile Bankshares Corporation	
PNC Financial Corp.	
--Subordinated at 'A'.	
	
PNC Capital Trust C, E	
National City Capital Trust IV	
Fort Wayne Capital Trust I	
--Trust preferred at 'BBB'.	
	
National City Preferred Capital Trust I	
--Preferred Stock 'BBB-'.	
	
PNC Preferred Funding Trust I, II, III	
--Hybrid capital instruments at 'BBB'.	
	
National City Credit Corporation	
--Short-term IDR at 'F1';	
--Support at '5';	
--Commercial paper at 'F1'.	
	
National City Corporation	
--Senior unsecured at 'A+';	
--Subordinated at 'A';	
--Convertible preferred (trust preferred securities) at 'BBB';	
--Preferred stock at 'BBB-'.	
	
National City Bank (Cleveland)  	
--Long-term deposits at 'AA-';	
--Senior unsecured at 'A+';	
--Subordinated at 'A'; 	
--Short-term deposits at 'F1+'.	
	
National City Bank of Indiana	
--Long-term deposits at 'AA-';	
--Subordinated at 'A'.	
	
National City Bank of Kentucky	
The Provident Bank	
--Long-term deposits at 'AA-'.

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