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