As part of its integration process and cost reduction efforts, PNC Financial Services Group Inc. ( PNC) announced 33 job cuts in its builder finance segment in Houston. The downsizing will be implemented in the upcoming month.
Earlier in March, PNC Financial completed the purchase of RBC Bank ( USA), the U.S. retail banking subsidiary of Royal Bank of Canada ( RY). PNC Financial bought 100% of the issued and outstanding shares of RBC Bank for around $3.47 billion in cash.
However, as part of the integration process, PNC Financial strategically purged a number of business segments such as the builder finance group, which was primarily located in Houston. Even though the majority of PNC’s builder finance portfolio has been trimmed, the bank has shifted parts of the portfolio to other units. The latest layoffs come on the heels of 60 job cuts since March in the builder finance segment. PNC Financial plans to eliminate a total of 93 employees by December.
Majority of the U.S. banks are struggling to control costs amidst the stringent regulatory environment and dismal macro-economic factors. In September, Bank of America Corporation ( BAC) announced its plans to layoff nearly 16,000 employees by the end of the current year as part of its cost-cutting efforts in order to boost top-line growth. The estimated headcount following the job cuts would be nearly 260,000, the lowest since 2008.
Amidst the sluggish economic environment, banks have been increasingly adopting rigorous cost-cutting measures to maintain a sound capital buffer in order to endure a financial crisis. However, with numerous job losses, unemployment rate could worsen and further slow down the economic recovery.
We believe the downsizing strategies are of utmost importance to PNC Financial, since it will help the company attain its goal of bringing down expenses. The company’s non-interest expense in the third quarter of 2012 was $2.6 billion, unchanged from the prior quarter.
PNC Financial’s shares maintain a Zacks #3 Rank, which translates into a short-term Hold rating. However, we believe that prudent business model changes along with cost cutting initiatives can lead to an improvement in efficiency and add to its competitive edge. These factors may ultimately result in upward estimate revisions, thereby leading to an improved Zacks Rank. In the same sector, M&T Bank Corporation ( MTB) retains a Zacks #1 Rank.
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