Moody's Investors Service, a rating arm of
), downgraded the rating outlook of
PNC Financial Services Group Inc.
) and its subsidiaries. Moody's downgraded the long-term ratings
of PNC Financial and its subsidiaries to 'Stable' from
PNC Financial has been rated A3 for its senior debt. Moreover,
PNC Financial's primary banking subsidiary has a standalone bank
financial strength rating (BFSR) of C+ along with the baseline
credit assessment (BCA) of a2.
Further, the bank's long-term deposit rating is A2, whereas
the short-term deposit rating stands at Prime-1.
Reasons Behind the Downgrade
The rating agency is concerned with the obstacles faced by PNC
Financial in achieving a high level of profitability. In the
recent quarters, the company's earnings have been negatively
impacted by elevated mortgage repurchase provisions. Further, a
challenging macro economic environment for loan and revenue
growth has added fuel to the fire.
Moody feels that the purchase accounting accretion due to PNC
Financial's earlier acquisitions will prove to be a drag on its
financials, especially amidst the current low interest rate
environment. This is mainly attributable to pressure on its net
interest margin as a result of lower reinvestment rates on loans
and securities. According to the rating agency, the company is
not well placed to generate higher profitability levels in the
As of September 30, 2012, PNC Financial estimated Basel III
Tier 1 common ratio was 7.2% on a fully phased-in basis. Thus the
company still lags behind its target of 8.0 - 8.5%. However,
management anticipated to reach its target by the end of 2013.
However, according to Moody's, PNC Financial's current capital
levels are not adequate to buffer against a financial crisis.
While downgrades in ratings affect investors' confidence in
the company and its creditworthiness in the market, we note that
PNC Financial's robust core franchisee is a positive. Further, a
diverse revenue stream, solid capital position and a healthy
balance sheet also augur well.
Nevertheless, regulatory issues along with the expectation of
a continued low interest rate environment are likely limit the
stock's upside potential in the upcoming quarters.
Last week, Moody's had also lowered
) ratings. Moody's have reduced the senior debt rating of
U.S. Bancorp to A1 from Aa3. Despite having a diversified
business model which is also well-managed, U.S. Bancorp cannot
avoid the ill-effects of a low interest rate environment. As a
consequence, the company's net interest margin is likely to
PNC Financial currently retains its Zacks #3 Rank, which
translates into a short-term Hold rating. U.S. Bancorp also
retains a Zacks #3 Rank.
MOODYS CORP (MCO): Free Stock Analysis Report
PNC FINL SVC CP (PNC): Free Stock Analysis
US BANCORP (USB): Free Stock Analysis Report
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