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Rating Action:

Moody's affirms PNC (senior at A1); upgrades National City

23 Dec 2008
Moody's affirms PNC (senior at A1); upgrades National City

New York, December 23, 2008 -- Moody's Investors Service affirmed the ratings of PNC Financial Services Group, Inc. (PNC) and its subsidiaries. PNC is rated A1 for senior debt and the lead bank, PNC Bank, N.A., is rated B for bank financial strength and Aa3 for long-term deposits. The outlook on PNC and its subsidiaries is negative.

In a related action, Moody's upgraded the ratings of National City Corporation and its subsidiaries. National City was upgraded to A1 from A3 for senior debt and its lead bank, National City Bank, was upgraded to Aa3 from A2 for long-term deposits and to B from C+ for bank financial strength. The short-term rating of National City Credit Corporation was raised to Prime-1 from Prime-2. The outlook for NCC and its subsidiaries is also negative.

Today's rating actions follow the announcements by PNC and National City, respectively, that their shareholders have approved the acquisition of 100% of National City by PNC. The acquisition has already received all regulatory approvals. As a result, Moody's expects that the transaction will close no later than December 31, 2008. When the transaction is completed, the holding companies will merge. However, as is typical in large bank acquisitions, the lead banks will continue to operate as separate legal entities for some time, though it is PNC's intent to merge them in the future.

"The affirmation of PNC's ratings results from our view that the combination of these two entities will create the fifth largest U.S. domestic depository, which has the potential to ultimately strengthen PNC's franchise value," said Moody's Vice President and Senior Credit Officer, Allen Tischler. "At the same time, the negative outlook reflects the meaningful integration challenges and incremental credit risk associated with National City."

To address the integration challenges, PNC plans to convert the National City franchise in multiple phases over the next two years, thereby lessening the potential for significant missteps. Moody's further notes the challenges that stem from National City's geographic concentration in regions with comparatively weak economies, including Michigan and Ohio. However, PNC has demonstrated its ability to operate successfully in slow growth markets over a number of years and Moody's anticipates that PNC will enhance the profitability of the National City franchise over time.

In fact, Moody's expects PNC to generate positive net income throughout 2009. If National City's most challenged markets suffer a prolonged and deeper downturn than is currently anticipated, such that PNC begins to report net losses that would weaken PNC's credit profile and result in negative rating pressure.

With regard to National City's significant exposure to troubled residential and commercial real estate assets, much of which was sourced from outside its core footprint, PNC will significantly mark those assets down in accounting for the acquisition. In Moody's assessment, PNC's marks are reasonable, which should reduce the need for future provisioning. However, here too, a substantially weaker U.S. economy could further impair these portfolios, a risk that is also incorporated in our negative rating outlook.

PNC's pro forma capital position will be strengthened by issuing $7.7 billion in preferred shares and common stock warrants to the U.S. Treasury under its Capital Purchase Program. While this will result in solid regulatory capital ratios, PNC's tangible common equity ratio will be comparatively low, though Moody's expects earnings retention will enhance it over time. In addition, PNC's common dividend payout is significant and could be reduced to protect or enhance its capital adequacy.

Moody's last rating action on PNC was on October 24, 2008 when the rating outlook of PNC and its subsidiaries was changed to negative from stable. Moody's last rating action on National City was also on October 24, 2008 when it was placed under review for possible upgrade.

The principal methodologies used in rating this issuer were "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Upgrades:

..Issuer: Merchants National Corp

....Senior Unsecured Medium-Term Note Program, Upgraded to A1 from A3

..Issuer: National City Bank

....Bank Financial Strength Rating, Upgraded to B from C+

....Issuer Rating, Upgraded to Aa3 from A2

....OSO Senior Unsecured OSO Rating, Upgraded to Aa3 from A2

....Multiple Seniority Bank Note Program, Upgraded to a range of A1 to Aa3 from a range of A3 to A2

....Subordinate Regular Bond/Debenture, Upgraded to A1 from A3

....Senior Unsecured Deposit Program, Upgraded to Aa3 from A2

....Senior Unsecured Regular Bond/Debenture, Upgraded to Aa3 from A2

....Senior Unsecured Deposit Rating, Upgraded to Aa3 from A2

..Issuer: National City Bank of Kentucky

....Subordinate Regular Bond/Debenture, Upgraded to A1 from A3

..Issuer: National City Bank of Pennsylvania

....Subordinate Regular Bond/Debenture, Upgraded to A1 from A3

..Issuer: National City Bank, Indiana

....Subordinate Regular Bond/Debenture, Upgraded to A1 from A3

....Senior Unsecured Regular Bond/Debenture, Upgraded to Aa3 from A2

..Issuer: National City Capital Trust I

....Preferred Stock Preferred Stock, Upgraded to A2 from Baa1

..Issuer: National City Capital Trust II

....Preferred Stock Preferred Stock, Upgraded to A2 from Baa1

....Preferred Stock Shelf, Upgraded to (P)A3 from (P)Baa2

..Issuer: National City Capital Trust III

....Preferred Stock Preferred Stock, Upgraded to A2 from Baa1

....Preferred Stock Shelf, Upgraded to (P)A3 from (P)Baa2

..Issuer: National City Capital Trust IV

....Preferred Stock Preferred Stock, Upgraded to A2 from Baa1

....Preferred Stock Shelf, Upgraded to (P)A3 from (P)Baa2

..Issuer: National City Corporation

....Junior Subordinated Shelf, Upgraded to (P)A2 from (P)Baa1

....Multiple Seniority Shelf, Upgraded to a range of (P)A3 to (P)A1 from a range of (P)Baa2 to (P)A3

....Preferred Stock Preferred Stock, Upgraded to A3 from Baa2

....Subordinate Regular Bond/Debenture, Upgraded to A2 from Baa1

....Senior Unsecured Conv./Exch. Bond/Debenture, Upgraded to A1 from A3

....Senior Unsecured Regular Bond/Debenture, Upgraded to A1 from A3

..Issuer: National City Credit Corporation

....Commercial Paper, Upgraded to P-1 from P-2

..Issuer: National City Preferred Capital Trust I

....Preferred Stock Preferred Stock, Upgraded to A3 from Baa2

....Preferred Stock Shelf, Upgraded to (P)A3 from (P)Baa2

..Issuer: National City Preferred Capital Trust II

....Preferred Stock Shelf, Upgraded to (P)A3 from (P)Baa2

..Issuer: National City Preferred Capital Trust III

....Preferred Stock Shelf, Upgraded to (P)A3 from (P)Baa2

..Issuer: PFGI Capital Corporation

....Preferred Stock Preferred Stock, Upgraded to A3 from Baa2

..Issuer: Provident Bank

....Subordinate Regular Bond/Debenture, Upgraded to A1 from A3

..Issuer: Provident Capital Trust I

....Preferred Stock Preferred Stock, Upgraded to A2 from Baa1

..Issuer: Provident Capital Trust III

....Preferred Stock Shelf, Upgraded to (P)A2 from (P)Baa1

Outlook Actions:

..Issuer: Merchants National Corp

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Bank

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Bank of Kentucky

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Bank of Pennsylvania

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Bank, Indiana

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Capital Trust I

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Capital Trust II

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Capital Trust III

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Capital Trust IV

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Corporation

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Credit Corporation

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Preferred Capital Trust I

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Preferred Capital Trust II

....Outlook, Changed To Negative From Rating Under Review

..Issuer: National City Preferred Capital Trust III

....Outlook, Changed To Negative From Rating Under Review

..Issuer: PFGI Capital Corporation

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Provident Bank

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Provident Capital Trust I

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Provident Capital Trust III

....Outlook, Changed To Negative From Rating Under Review

PNC, headquartered in Pittsburgh, Pennsylvania, reported assets of $146 billion at September 30, 2008.

National City, headquartered in Cleveland, Ohio, reported assets of $145 billion at September 30, 2008.

New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Allen H. Tischler
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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