Moody's downgrades PNC Financial two notches

NEW YORK, May 12 (Reuters) - Moody's Investors Service on Tuesday cut its rating on PNC Financial Services Group(PNC.N) by two notches, saying its equity position is somewhat low for the credit costs it faces from the real estate downturn.

Moody's cut PNC's senior debt rating to A3, the seventh-highest investment grade, from A1. Its subordinated debt was cut to Baa1, the eighth-highest investment grade, from A2. The outlook is negative, meaning another downgrade is likely over the next 12 to 18 months.

In the near term, PNC faces the challenge of integrating National City, which it acquired late in 2008, Moody's said in a statement.

"Longer-term, PNC faces the task of profitably growing its direct banking franchise in National City's former markets, including the economically weak Michigan and Northern Ohio regions as well as Florida, which continues to suffer from a real estate-led downturn," Moody's said.

If the U.S. economic downturn is deeper and longer than expected, "or if the integration of National City is mismanaged, negative rating pressure could emerge," Moody's said. Nonetheless, PNC's ratings are supported by its strong liquidity and diversified revenue base, the agency said. (Reporting by Dena Aubin; Editing by Leslie Adler)