Wednesday, July 25, 2012

PNC Financial Services Earnings Review: Legacy Losses Derail Quarter

PNC Financial Services reported QE June 2012 financial results on Wednesday, July 18

The quarter was ruined for CEO James Rohr due to taking a significant hit of $403 million ($0.76 per share) for residential mortgage repurchase obligations, trust preferred securities redemptions, and integration costs of the acquisition of RBC Bank (USA).

The mortgage repurchase obligations date back to the acquisition of City National Corp., and their mortgage portfolio, in 2008. Some GSE's, FNMA and FHLMC, required PNC to take back questionably underwritten and poorly performing mortgages. The issue now is whether additional losses will be incurred in the future, increasing investor uncertainty.

Metric, QoQ Change, YoY Change
Total Assets: $299.58 billion, +1%, +14%
Net Revenues: $3.62 billion, -3%, +1%
Net Income: $546 million, -33%, -40%
Earnings per Share: $0.98, -32%, -41%

At QE 6-30-12 I have downgraded PNC Financial Services to a "B+" from an "A-" at the prior QE 3-31-12. This is on a scale of A+ to G-. The median rating is "D" and the average rating at QE 3-31-12 was "C". Financial position strength is weighted more than financial performance. The QE 3-31-12 bank ratings review is here.

“PNC’s results for the second quarter reflected strong operating performance in a challenging environment,” said James E. Rohr, chairman and chief executive officer. “While we experienced a few items that reduced our earnings in the short term, we were very pleased with our success in continuing to grow customer relationships and loans resulting in strong revenue. We are excited about the opportunities we see in our newly acquired southeastern markets and across our entire franchise to drive long-term value.”


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