Ratings of PNC Financial Services Group, Inc. PNC and its subsidiaries have been affirmed by Moody's Investors Service. Outlook for the parent company has been kept unchanged, whereas outlook for the banking subsidiary, PNC Bank, N.A.'s long-term deposit, senior unsecured debt and issuer ratings has been downgraded to negative from stable.
PNC Financial’s senior debt rating is A3. PNC Bank 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).
The affirmation comes post PNC Financial’s decision to acquire BBVA USA Bancshares. Notably, the all-cash deal worth $11.6 billion, expected to close in mid-2021, is part of PNC Financial’s effort to expand presence in international markets.
Moody's has placed on review for upgrade the ratings and assessments of the to-be acquired company, except Prime-1 short-term deposit rating of its bank subsidiary, BBVA USA, which has been affirmed.
Reasons Behind Affirmation
The ratings agency has affirmed PNC Financial’s ratings on the back of its robust fundamentals and proven acquisition track record. Also, in Moody’s view, benefits derived by creditors from the company’s strong balance sheet and diverse sources of revenues are durable.
The acquisition is expected to speed up PNC Financial’s national expansion strategy, leading to creation of the fifth largest U.S. commercial bank with more than $550 billion in total assets and strong market positions.
Moody’s does not expect PNC Financial’s asset risk profile to deteriorate post acquisition, as the company’s disciplined approach to loan growth and limited concentration risk, even during the pandemic, is likely to sustain it.
PNC Financial’s capital position is expected to be slightly affected by the acquisition in comparison with its position post divesture of equity investment in BlackRock BLK in May. However, the ratings agency feels that the company’s capital has an above-peer average resilience to stress.
Also, Moody’s finds PNC Financial’s ability to successfully integrate acquisitions commendable as the company uses them as a platform for organic growth.
Further, Moody's has downgraded the outlook on PNC Bank. This is because it views that recent deposit growth and acquisition may reduce the amount of unsecured debt on PNC Financial's balance sheet, which is a key input in Moody's advanced Loss Given Failure analysis,. This, in turn, could result in a lower degree of protection for its creditors.
Factors Leading to Change in Ratings
The ratings agency might upgrade PNC Financial on higher BCA. Ratings can be downgraded 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.
Shares of the company have gained 24.8% in the past six months compared with 26.5% growth registered by the industry.
PNC Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past few months, Moody’s Investors Service has affirmed ratings and outlook for many finance sector companies. Amid the coronavirus pandemic and the resultant economic uncertainties, the rating agency has affirmed the ratings and maintained stable outlooks for Northern Trust NTRS, Goldman Sachs GS and Ameriprise Financial.
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