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Rating Action:

Moody's affirms PNC's ratings (A3 senior unsecured) and reviews BBVA USA's ratings (Baa2 senior unsecured) for upgrade following acquisition announcement

16 Nov 2020

New York, November 16, 2020 -- Moody's Investors Service (Moody's) has affirmed the ratings and assessments of PNC Financial Services Group, Inc. (PNC) and its subsidiaries following its announcement that it has agreed to acquire BBVA USA Bancshares, Inc. PNC is rated A3 for senior debt. Its bank subsidiary, PNC Bank, N.A., has an a2 standalone Baseline Credit Assessment (BCA), deposit ratings of Aa2/Prime-1, a senior debt rating of A2, a subordinated debt rating of A3, Counterparty Risk Ratings of A2/Prime-1, and Counterparty Risk Assessments of A1(cr)/Prime-1(cr). Following the ratings affirmation, PNC Financial Services Group, Inc.'s outlook remains stable. However, Moody's has changed the outlooks on PNC Bank, N.A.'s long-term deposit, senior unsecured debt and issuer ratings to negative from stable, based on Moody's view that recent deposit growth and the acquisition may reduce the amount of unsecured debt on PNC's balance sheet, a key input in Moody's Loss Given Failure analysis, resulting in a lower degree of protection for its creditors.

In the same action, Moody's has placed on review for upgrade the ratings and assessments of BBVA USA Bancshares, Inc. and its subsidiaries, with the exception of the Prime-1 short-term deposit rating of its bank subsidiary, BBVA USA, which was affirmed. BBVA USA Bancshares, Inc. has a Baa2 issuer rating. BBVA USA has a baa1 standalone BCA, deposit ratings of A2/Prime-1, a senior debt rating of Baa2, a subordinated debt rating of Baa2, Counterparty Risk Ratings of Baa1/Prime-2, and Counterparty Risk Assessments of A3(cr)/Prime-2(cr).

"With the BBVA USA acquisition, PNC will become the fifth-largest commercial banks in the US, gaining market positions across much of the Southwest, allowing PNC to accelerate its expansionary strategy," said Joseph Pucella, Senior Vice President. "Although the acquisition carries integration risk, we have affirmed PNC's ratings based on the bank's credit fundamentals and proven acquisition track record," Mr. Pucella added.

A complete list of affected ratings and entities within both banking groups can be found at the end of this press release.

RATINGS RATIONALE

The rating actions follow PNC's announcement that it will acquire BBVA USA Bancshares, Inc. in an all-cash transaction valued at $11.6 billion. PNC expects to close the proposed acquisition in mid-2021, subject to regulatory approvals. Upon closing, PNC intends to merge BBVA USA Bancshares, Inc. into PNC with PNC continuing as the surviving entity. Post-closing, PNC intends to merge BBVA USA into PNC Bank, N.A.

In affirming PNC's ratings, Moody's noted the company's strong financial fundamentals and proven acquisition track record. The ratings reflect Moody's view that the benefits to creditors from PNC's balance sheet strengths and revenue diversity are durable. PNC operates a large direct banking franchise throughout most of the Eastern US, and in recent years has expanded its retail presence in markets outside of its existing retail branch footprint. This franchise results in good geographic diversity, a sizable, low-cost core deposit base and healthy liquidity. The acquisition will accelerate PNC's national expansion strategy, creating the fifth largest US commercial bank with over $550 billion in total assets and strong market positions.

PNC's strong asset risk profile is underpinned by management's disciplined approach to loan growth and limited concentration risk, which Moody's expects will remain in the current difficult environment resulting from the coronavirus pandemic and following the acquisition. Although the acquisition will weaken PNC's capitalization, which improved following the company's May 2020 sale of its equity investment in BlackRock, Inc., PNC's capital ratios will remain solid. Moody's believes that PNC's capital has an above-peer average resilience to stress. In addition, PNC estimates that the allowance for credit losses to total loans for the combined entity will be 2.85%, including reserves for the acquired loans from BBVA USA of 3.85%.

With respect to acquisitions, PNC has demonstrated an ability to successfully integrate acquisitions and to use them as a platform for organic growth. Recent examples include the 2008 acquisition of National City, which added several new markets in the Midwest to PNC's footprint, and the 2012 purchase of RBC Bank (USA), which extended PNC's franchise into a number of Southeastern US states.

Following the ratings affirmation, PNC's outlook remains stable. However, Moody's has changed the outlooks on PNC Bank, N.A.'s long-term deposit, senior unsecured debt and issuer ratings to negative from stable, based on its view that recent deposit growth and the acquisition may reduce the amount of unsecured debt on PNC's balance sheet, a key input in Moody's advanced Loss Given Failure analysis, which could result in a lower degree of protection for its creditors.

Moody's placed BBVA USA Bancshares, Inc.'s ratings and assessment on review for upgrade, with the exception of BBVA USA's Prime-1 short-term deposit rating, which was affirmed, because it expects its creditors to benefit from the acquisition. BBVA USA Bancshares, Inc.'s BCA reflects Moody's view of its good capitalization, solid asset risk management, and strong deposit funding profile. The BCA also incorporates BBVA USA's weaker profitability relative to the US regional bank peers median, as a result of a higher cost structure, and elevated loan loss provisions associated with non-residential unsecured consumer lending and energy concentration.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of PNC's standalone BCA is unlikely absent an enduring increase in earnings or capital, all without an increase in the company's risk profile. However, a higher BCA would likely lead to a ratings upgrade.

Moody's could downgrade PNC's standalone BCA if the company encounters unexpected challenges in the integration of BBVA USA Bancshares, Inc. or if the company's asset quality deteriorates noticeably or its profitability suffers a material downturn. A lower BCA would likely lead to a ratings downgrade.

For BBVA Bancshares, Inc. Moody's review for upgrade will focus on the benefits to creditors of the proposed acquisition by a higher rated company, specifically its stronger prospective profitability and improved revenue diversity. Given the direction of the ratings review, downward rating movement is unlikely over the next 12-18 months.

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

DEBT LIST

On Review for Upgrade:

..Issuer: BBVA USA

.... Adjusted Baseline Credit Assessment, Placed on Review for Upgrade, currently baa1

.... Baseline Credit Assessment, Placed on Review for Upgrade, currently baa1

.... Counterparty Risk Assessment, Placed on Review for Upgrade, currently A3(cr)

.... Counterparty Risk Assessment, Placed on Review for Upgrade, currently P-2(cr)

.... Counterparty Risk Rating, Placed on Review for Upgrade, currently P-2

.... Counterparty Risk Rating, Placed on Review for Upgrade, currently Baa1

.... Issuer Rating, Placed on Review for Upgrade, currently Baa2

....Multiple Seniority Bank Note Program, Placed on Review for Upgrade, currently (P)P-2

....Multiple Seniority Bank Note Program, Placed on Review for Upgrade, currently (P)Baa2

....Subordinate Regular Bond/Debenture, Placed on Review for Upgrade, currently Baa2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Upgrade, currently Baa2

....Senior Unsecured Deposit Rating, Placed on Review for Upgrade, currently A2

..Issuer: BBVA USA Bancshares, Inc.

.... Issuer Rating, Placed on Review for Upgrade, currently Baa2

....Pref. Stock Non-cumulative Preferred Stock, Placed on Review for Upgrade, currently Ba1(hyb)

..Issuer: Phoenix Loan Holdings

....Pref. Stock Non-cumulative Preferred Stock, Placed on Review for Upgrade, currently Ba1(hyb)

Affirmations:

..Issuer: BBVA USA

.... Deposit Rating, Affirmed P-1

..Issuer: National City Bank

....Senior Unsecured Regular Bond/Debenture, Affirmed A2, Negative

..Issuer: PNC Bank, N.A.

.... Adjusted Baseline Credit Assessment, Affirmed a2

.... Baseline Credit Assessment, Affirmed a2

.... Counterparty Risk Assessment, Affirmed A1(cr)

.... Counterparty Risk Assessment, Affirmed P-1(cr)

.... Counterparty Risk Rating, Affirmed A2

.... Counterparty Risk Rating, Affirmed P-1

.... Issuer Rating, Affirmed A2, Negative

.... Deposit Rating, Affirmed P-1

....Multiple Seniority Bank Note Program, Affirmed (P)A3

....Multiple Seniority Bank Note Program, Affirmed (P)A2

....Multiple Seniority Bank Note Program, Affirmed P-1/(P)P-1

....Subordinate Regular Bond/Debenture, Affirmed A3

....Senior Unsecured Commercial Paper, Affirmed P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed A2, Negative

....Senior Unsecured Deposit Rating, Affirmed Aa2

..Issuer: PNC Capital Trust C

....Pref. Stock Preferred Stock, Affirmed Baa1(hyb)

..Issuer: PNC Financial Services Group, Inc.

.... Issuer Rating, Affirmed A3, Stable

....Multiple Seniority Shelf, Affirmed (P)A3

....Multiple Seniority Shelf, Affirmed (P)Baa2

....Pref. Stock Non-cumulative Preferred Stock, Affirmed Baa2(hyb)

....Subordinate Regular Bond/Debenture, Affirmed A3

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed A3, Stable

..Issuer: PNC Funding Corporation

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed A3, Stable

Outlook Actions:

..Issuer: BBVA USA

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

..Issuer: BBVA USA Bancshares, Inc.

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

..Issuer: Phoenix Loan Holdings

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

..Issuer: National City Bank

....Outlook, Changed To Negative From Stable

..Issuer: PNC Bank, N.A.

....Outlook, Changed To Negative From Stable

..Issuer: PNC Financial Services Group, Inc.

....Outlook, Remains Stable

..Issuer: PNC Funding Corporation

....Outlook, Remains Stable

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Joseph Pucella
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Sadia Nabi
Asst Vice President - Analyst
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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