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PNC Financial Ratings Affirmed by Moody's, Outlook Stable

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Despite the pending sale of PNC Financial’s (PNC - Free Report) equity investment in BlackRock, Inc. (BLK - Free Report) , the ratings and assessments of the company and its banking subsidiary, PNC Bank, have been affirmed by Moody’s Investors Service, the rating division of Moody’s Corporation (MCO - Free Report) . The bank’s senior debt has been given A3 rating. Also, the ratings outlook remained stable.

The subsidiary’s deposit rating was Aa2/Prime-1, has an a2 standalone Baseline Credit Assessment (BCA) and the senior debt were rated A2.

Reasons for Ratings Affirmation

Per Moody’s, the divestiture will solidify PNC Financial's capital and liquidity positions to grasp the increased expected credit costs in the coming quarters due to the coronavirus crisis. Though the bank holds a strong capital currently, Moody’s views it to be of weak credit strength given PNC Financial’s strong asset risk and liquidity profiles.

Notably, the bank recorded a Common Equity Tier 1 (CET1) capital ratio of 9.4% as of Mar 31, 2020, down from the prior year’s 9.8%. Per Moody’s, the proceeds from the sale of the BlackRock investment will augment the ratio by 1.8%.

On the contrary, with the boost to capital and liquidity, the divestiture carries the risk of  reduction of a steady source of non-interest income for PNC Financial, thus weakening the company's overall revenue diversification. Notably, the bank recorded 9% of total non-interest income in first-quarter 2020 from BlackRock investment and averaged 13% since the first quarter of 2017. Nevertheless, the ratings are supported by the company’s sustainable business model, revenue mix and diverse sources of earnings.

Per PNC Financial's management, the divestiture will help the company explore investment opportunities in the current market. Though Moody’s considers the bank to be a regulated acquirer, any large acquisition escalating the asset risk, depleting capital, or weakening the bank’s standalone credit profile would be negative for creditors. Moreover, Moody's views increased shareholder distributions as a negative for the ratings, as it impacts the bank’s capability of absorbing unexpected losses at the time of enormous uncertainty.

Moody’s ratings are supported by PNC Financial’s ability of generating solid earnings on its retail and commercial banking businesses and balanced revenue base. Further, the bank’s direct banking franchise supports financials with a sizable, low-cost core deposit base, healthy liquidity and geographic diversity. Also, the bank’s recently-launched retail national expansion strategy bodes well, along with its efforts to fortify presence in untapped markets. The company’s healthy market position and strong treasury management franchise support funding.

Also, PNC Financial’s efforts to conservatively manage loan growth and limit concentration risks are expected to help the bank survive, even in an unfavorable economic environment. Moody's unchanged assessment of the bank's credit profile is reflected in the stable ratings.

Shares of the company have depreciated 35% in the last six months compared with the 38.9% decline recorded by the industry.

PNC Financial currently carries a Zacks Rank #5 (Strong Sell).

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