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PNC Financial's Ratings Affirmed by Moody's, Outlook Stable

Zacks Equity Research

Ratings and assessments of PNC Financial PNC and its banking subsidiary, PNC Bank have been affirmed by Moody’s Investors Service, the rating division of Moody’s Corporation MCO. The bank’s senior debt has been given A3 rating. Also, the ratings outlook remained stable.

The subsidiary’s deposit rating was Aa2/Prime-1, and the senior and subordinated debts were rated A2 and A3, respectively.

Shares of this Zacks Rank #3 (Hold) company have rallied 36.5% so far this year, outperforming industry’s growth of 34.6%.

Reasons for Affirmation

Per Moody’s, PNC Financial generates solid earnings on the back of retail and commercial banking businesses and balanced revenue base. Nearly 57% of the bank’s revenues comprise net interest income, and the rest are generated from various non-interest income sources.

Further, PNC Financial’s direct banking franchise supports financials with a sizable, low-cost core deposit base, healthy liquidity and geographic diversity. Also, the bank’s recently launched retail national expansion strategy bodes well, along with its efforts to fortify presence in untapped markets. The company’s healthy market position and strong treasury management franchise support funding.

Also, PNC Financial’s efforts to conservatively manage loan growth and limit concentration risk have resulted in lower level of net charge-off rate and nonperforming assets, reflecting strong asset quality. Also, the bank has healthy liquidity and capital, indicating a solid balance sheet position.

These factors will help the bank to survive, even in an unfavorable economic environment. Moody's unchanged assessment of the bank's credit profile is reflected in the stable ratings.

Per the rating agency, PNC Financial’s favorable asset risk and liquidity profiles outweigh the decline in capital ratios in the recent quarters. Also, the bank’s strong capital position makes it more resilient to stress compared with its peers. Notably, Moody’s believe that PNC Financial’s 22% stake in BlackRock, Inc. BLK will provide significant capital, when needed.

While PNC Financial’s large investments in technology and digital capabilities were costly and led to average efficiency ratio, such efforts benefited its retail and corporate operations.

PNC Financial’s diverse franchise and strong management team are likely to continue to benefiting it. With this expectation, Moody's kept the bank’s outlook stable. However, with the recently finalized U.S. regulatory tailoring rules, the company will be subject to 85% of the full liquidity coverage ratio requirements. This rule, set to be effective Jan 1, 2020, can hamper the bank’s liquidity profile to some extent.

A Key Pick

State Street Corporation STT has witnessed upward earnings estimate revision of 1% for 2019 in the past 60 days. Moreover, the Zacks Rank #1 (Strong Buy) stock has gained 26.3% in the year-to-date period. You can see the complete list of today’s Zacks #1 Rank stocks here.

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