DBRS Changes Trend on PNC Financial Services Group to Positive from Stable; Confirms Ratings at A (high)

DBRS has today changed the trend for all ratings of PNC Financial Services Group, Inc. (PNC or the Company) and its subsidiaries to Positive from Stable. The trend change follows a review of the Company’s financial fundamentals and future prospects. At the same time, DBRS has confirmed the ratings of PNC and its subsidiaries, including the Company’s Issuer & Senior Debt rating, which remains at A (high).

The Positive trend recognizes PNC’s sustained above-peer group average operating results and profitability characteristics arising from a diverse and predominantly non-interest income-based revenue mix, as well as the Company’s substantially strengthened market shares in the attractive Washington, D.C., Maryland and northern Virginia markets following the acquisitions of Riggs National Bancorp and Mercantile Bancshares. In addition, PNC’s ratings take into account the Company’s low-risk profile, evidenced by a clean loan portfolio and other high-quality assets, robust liquidity position resulting from ample core deposits, and stronger than peer-median capitalization in spite of acquisition-related goodwill. Collectively, these characteristics underpin DBRS’s expectation that PNC will be able to sustain robust operating and financial fundamentals while maintaining a low risk profile in years to come, even when faced with severe competition in its markets.

DBRS considers the principal challenges facing PNC to be maintaining organic deposit and loan growth rates at levels commensurate with those of its peer group in a highly competitive footprint, and overcoming some scale disadvantages in custody and funds administration relative to the leading industry providers. As well, PNC’s operating efficiency in its retail banking business is lower than the median for its peer group; hence, it is a drag on consolidated earnings and profitability.

PNC is a diversified financial services company that benefits from a well established community banking and deposit franchise with leading market shares in several states, a nationwide corporate and investment banking business, and a prominent role in providing processing and other services to investment managers in the United States and Europe. Although its stake in BlackRock – one of the leading investment management firms in the United States – has declined to about 35% as a result of a partial spin-off in 2006, the contribution of this business to PNC’s consolidated earnings is expected to increase in future years due to BlackRock’s much larger scale after its combination with Merrill Lynch’s investment management business. Non-interest income has been growing steadily in both absolute terms and as a percentage of net revenues, and currently exceeds two thirds of PNC’s net revenues. This strength, together with the diverse revenue mix and PNC’s powerful deposit franchise, accounts for the Company’s above-average earnings stability.

DBRS believes that sustained organic earnings growth in PNC’s principal businesses, successful conversion of its recent acquisitions and continued improvements in operating efficiency could lead to a rating upgrade. By contrast, declining earnings growth, lower profitability, weakening capital ratios and integration miscues could lead to negative rating action.

Notes:
The Trust Preferred Securities contain certain unique covenants that give them some equity-like characteristics.
All figures are in U.S. dollars unless otherwise noted.