Moody's downgrades PNC (sr to A3); outlook negative
New York, May 12, 2009 -- Moody's Investors Service downgraded the senior debt rating of PNC Financial
Services Group, Inc. (PNC) to A3 from A1, the subordinated
debt rating to Baa1 from A2, and the preferred stock rating to Baa2
from A3. The holding company's short-term rating was downgraded
to Prime-2 from Prime-1.
The long-term ratings of PNC Bank, N.A. and
National City Bank, the lead bank subsidiaries, were also
downgraded. Both banks' financial strength ratings (BFSRs) were
lowered to C+ from B, their long-term deposit and senior
debt ratings were lowered to A1 from Aa3, and their subordinated
debt ratings were lowered to A2 from A1. However, the banks'
Prime-1 short-term ratings were affirmed. Following
these rating actions, the outlook on PNC and its subsidiaries is
negative.
Today's actions had no impact on the FDIC-guaranteed debt issued
by PNC. That debt remains rated Aaa with a stable outlook.
The downgrade of PNC's ratings resulted from Moody's view that although
PNC's year-end 2008 acquisition of National City will enhance its
long-term franchise value, its short-term intrinsic
financial strength has been weakened by a comparatively modest tangible
common equity position. Therefore, the rating action is consistent
with Moody's February 2009 announcement that it was recalibrating some
of the weights and relative importance attached to certain rating factors
within its current bank rating methodologies, notably capital adequacy.
Moody's believes PNC's tangible common equity ratio is somewhat low when
compared with the potential credit costs it faces in the near-term,
largely related to real estate exposures.
As a result, PNC's immediate challenges include a common equity
position that must be strengthened. In addition, the integration
of National City, currently scheduled to occur in multiple phases
over the next year, is a near-term challenge. Longer-term,
PNC faces the task of profitably growing its direct banking franchise
in National City's former markets, including the economically weak
Michigan and Northern Ohio regions as well as Florida, which continues
to suffer from a real estate-led downturn.
Nonetheless, PNC has incorporated most of the challenges associated
with National City's loan portfolio in its accounting for the acquisition.
PNC recorded approximately $11 billion in fair value marks on National
City's loan book, carried over a loan loss allowance from National
City of $2.6 billion, and recorded an incremental
loan loss reserve in the fourth quarter of roughly $0.5
billion. While Moody's anticipates additional credit costs will
be taken on National City's loans, as well as on PNC's legacy loan
and securities books, they are manageable overall. However,
depending on the timing of the anticipated credit costs, PNC's capital
metrics could decline in the coming quarters, and this was incorporated
into today's rating action.
As such, the downgrade of PNC was slightly more pronounced than
anticipated. In placing PNC on review for possible downgrade on
March 12, 2009, Moody's noted that it expected some of PNC's
ratings to be lowered by up to one notch. In fact, today's
action lowered PNC's BFSR ratings and its long-term holding company
ratings by two notches. However, the bank's long-term
ratings were only lowered one notch.
The different outcome for the bank and the holding company was influenced
by Moody's systemic support assumptions for PNC, which have increased
in the current environment. In Moody's judgment, PNC would
benefit from a moderate to high level of systemic support in a period
of financial distress due to the scale and breadth of its regional banking
franchise in the Mid-Atlantic and Midwest regions. That
resulted in a one notch lift above the BFSR for its bank-level
deposit and debt ratings. However, systemic support is less
beneficial for PNC's holding company creditors, in Moody's view.
Therefore, the holding company's ratings incorporate no lift and
are now two notches lower than those of the bank.
Moody's added that the results of the U.S. government's
recent bank stress tests require PNC to raise $600 million in common
equity. The rating agency believes that PNC can comfortably raise
that amount of equity, which totals less than 3% of its market
capitalization. One of PNC's options for raising the required capital
would be to convert existing preferred shares into common stock.
Nonetheless, PNC's Baa2 holding company preferred stock ratings
reflect Moody's standard notching conventions because Moody's does not
consider those securities to be at risk of a distressed exchange.
As part of its rating action on PNC, Moody's also corrected and
confirmed the A3 rating on the $150 million non-cumulative
perpetual preferred stock issued by PFGI Capital Corporation (Cusip 69335W209).
Since July 2004, as a result of an internal misclassification,
Moody's had rated this security on the basis of it being preferred stock
of National City Corporation. Based on a review of the terms of
this instrument, holders of this security ultimately have a preferred
stock claim on National City Bank. Following today's rating
action, preferred stock of National City Bank would be rated A3,
which is one notch below the bank's subordinated debt rating.
Therefore the rating on PFGI Capital Corporation's preferred stock
was corrected from A3 to A2 and then downgraded to A3.
Regarding the overall negative outlook, Moody's noted that if the
U.S. economic downturn is deeper and longer-lasting
than currently expected, or if the integration of National City
is mismanaged, negative rating pressure could emerge. Nonetheless,
PNC's ratings are supported by its healthy core pre-provision,
pre-tax income, strong liquidity, and diversified revenue
base.
Moody's last rating action on PNC was on March 12, 2009 when its
ratings were placed on review for possible downgrade.
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.
Downgrades:
..Issuer: Mercantile Bankshares Corporation
....Subordinate Regular Bond/Debenture,
Downgraded to Baa1 from A2
..Issuer: Merchants National Corp
....Senior Unsecured Medium-Term Note
Program, Downgraded to A3 from A1
..Issuer: National City Bank
....Bank Financial Strength Rating,
Downgraded to C+ from B
....Issuer Rating, Downgraded to A1
from Aa3
....OSO Senior Unsecured OSO Rating,
Downgraded to A1 from Aa3
....Multiple Seniority Bank Note Program,
Downgraded to a range of A2 to A1 from a range of A1 to Aa3
....Subordinate Regular Bond/Debenture,
Downgraded to A2 from A1
....Senior Unsecured Deposit Program,
Downgraded to A1 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A1 from Aa3
....Senior Unsecured Deposit Rating,
Downgraded to A1 from Aa3
..Issuer: National City Bank of Kentucky
....Subordinate Regular Bond/Debenture,
Downgraded to A2 from A1
..Issuer: National City Bank of Pennsylvania
....Subordinate Regular Bond/Debenture,
Downgraded to A2 from A1
..Issuer: National City Bank, Indiana
....Subordinate Regular Bond/Debenture,
Downgraded to A2 from A1
..Issuer: National City Capital Trust I
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A2
..Issuer: National City Capital Trust II
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A2
..Issuer: National City Capital Trust III
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A2
..Issuer: National City Capital Trust IV
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A2
..Issuer: National City Corporation
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A3
....Subordinate Regular Bond/Debenture,
Downgraded to Baa1 from A2
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to A3 from A1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A1
..Issuer: National City Credit Corporation
....Commercial Paper, Downgraded to
P-2 from P-1
..Issuer: National City Preferred Capital Trust I
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A3
..Issuer: PNC Bank, Delaware
....Bank Financial Strength Rating,
Downgraded to C+ from B
....Issuer Rating, Downgraded to A1
from Aa3
....OSO Senior Unsecured OSO Rating,
Downgraded to A1 from Aa3
....Senior Unsecured Deposit Rating,
Downgraded to A1 from Aa3
..Issuer: PNC Bank, N.A.
....Bank Financial Strength Rating,
Downgraded to C+ from B
....Issuer Rating, Downgraded to A1
from Aa3
....OSO Senior Unsecured OSO Rating,
Downgraded to A1 from Aa3
....Multiple Seniority Bank Note Program,
Downgraded to a range of A2 to A1 from a range of A1 to Aa3
....Subordinate Regular Bond/Debenture,
Downgraded to A2 from A1
....Senior Unsecured Bank Note Program,
Downgraded to A1 from Aa3
....Senior Unsecured Deposit Note/Takedown,
Downgraded to A1 from Aa3
....Senior Unsecured Medium-Term Note
Program, Downgraded to A1 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A1 from Aa3
....Senior Unsecured Deposit Rating,
Downgraded to A1 from Aa3
..Issuer: PNC Capital Trust C
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A2
..Issuer: PNC Capital Trust D
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A2
....Preferred Stock Shelf, Downgraded
to (P)Baa1 from (P)A2
..Issuer: PNC Capital Trust E
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A2
....Preferred Stock Shelf, Downgraded
to (P)Baa1 from (P)A2
..Issuer: PNC Capital Trust F
....Preferred Stock Shelf, Downgraded
to (P)Baa1 from (P)A2
..Issuer: PNC Capital Trust G
....Preferred Stock Shelf, Downgraded
to (P)Baa1 from (P)A2
..Issuer: PNC Capital Trust H
....Preferred Stock Shelf, Downgraded
to (P)Baa1 from (P)A2
..Issuer: PNC Financial Services Group, Inc.
....Issuer Rating, Downgraded to A3
from A1
....Junior Subordinated Shelf, Downgraded
to (P)Baa1 from (P)A2
....Multiple Seniority Shelf, Downgraded
to (P)Baa2 from (P)A3
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A3
..Issuer: PNC Funding Corporation
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of Baa1 to A3 from a range of
A2 to A1
....Multiple Seniority Shelf, Downgraded
to a range of (P)Baa1 to (P)A3 from a range of (P)A2 to (P)A1
....Subordinate Regular Bond/Debenture,
Downgraded to Baa1 from A2
....Senior Unsecured Commercial Paper,
Downgraded to P-2 from P-1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A1
..Issuer: PNC Institutional Capital Trust A
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A2
..Issuer: PNC Preferred Funding Trust I
....Preferred Stock Preferred Stock,
Downgraded to A3 from A2
..Issuer: PNC Preferred Funding Trust II
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A3
..Issuer: PNC Preferred Funding Trust III
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A3
..Issuer: Provident Bank
....Subordinate Regular Bond/Debenture,
Downgraded to A2 from A1
..Issuer: Provident Capital Trust I
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A2
..Issuer: Riggs National Corporation
....Subordinate Regular Bond/Debenture,
Downgraded to Baa1 from A2
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 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 Preferred Capital Trust I
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PFGI Capital Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Bank, Delaware
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Bank, N.A.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Capital Trust C
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Capital Trust D
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Capital Trust E
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Capital Trust F
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Capital Trust G
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Capital Trust H
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Financial Services Group, Inc.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Funding Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Institutional Capital Trust A
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Preferred Funding Trust II
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: PNC Preferred Funding Trust III
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Provident Capital Trust I
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Riggs National Corporation
....Outlook, Changed To Negative From
Rating Under Review
Confirmations:
..Issuer: PFGI Capital Corporation
....Preferred Stock Preferred Stock,
Confirmed at A3
PNC, based in Pittsburgh, Pennsylvania, reported assets
of $286 billion at March 31, 2009.
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
