In compliance with the stringent regulatory measures, The PNC Financial Services Group, Inc. (PNC - Free Report) intends to wind down Market Street Funding LLC, a commercial-paper firm that it operates.
Since 1995, Pittsburgh-based PNC Financial has managed Market Street Funding LLC. The firm helps clients to get short-term funding. Market Street issues securities backed by commercial paper to its clients. The company had $5.9 billion of outstanding short-term debt as of Jun 30.
Market Street's debt will be taken over by PNC Financial, as part of the wind-down. The closure process will be completed by the end of this year and Market Street's commercial paper will be repaid in full throughout that period.
Firms such as Market Street have been operated by for major banks to fund loans and other forms of financing. However, with the sluggish macroeconomic environment causing weak demand in loans, such firms have lost their value.
The international bank-capital standards, Basel III, might demand banks to increase the capital they hold against such companies and this has prompted PNC Financial to close Market Street. When Basel III is implemented, banks would need to set aside more capital as buffer to tide over unexpected losses. Additionally, the regulations will restrict banks from making risky investments.
Overall, we believe that structural changes in the sector will continue to hamper business expansion and investor confidence. Moreover, several factors such as asset-quality troubles, mortgage liabilities and tighter regulations will likely affect U.S. banks in the quarters ahead. However, foraying into the new capital regime will ensure long-term stability and security for the industry.
PNC Financial currently carries a Zacks Rank #2 (Buy). Other better performing banks include BankUnited, Inc. (BKU - Free Report) , BofI Holding, Inc. (BOFI - Free Report) and Preferred Bank (PFBC - Free Report) . All these stocks carry a Zacks Rank #1 (Strong Buy).