PNC Financial Exits TARP - Analyst Blog

PNC Financial Services Group (PNC) has set itself free from the Troubled Asset Relief Program (TARP) by redeeming $7.6 billion of Series N preferred shares held by the United States Treasury.

In order to fund the transaction, PNC Financial had issued $3.0 billion in stock earlier during the month along with selling its fund servicing unit, PNC Global Investment Servicing Inc. (GIS) to BNY Mellon (BK) for $2.3 billion in cash. Apart from these, the bank also issued $2 billion of senior notes earlier during the month.

These capital raising actions bodes well for PNC Financial by providing it financial flexibility without significant equity share dilution. The GIS transaction, which is slated to close in the third quarter of 2010, is expected to raise PNC’s Tier 1 capital ratio to 6.7% from 6% currently. With the TARP repayment, the bank is free to pursue favorable business opportunities.

PNC Financial is perfectly poised to return value to the shareholders. Its acquisition of National City in Dec 2008 has clearly strengthened its position as a leading bank wealth manager and created significant growth potential in new high-net-worth and institutional markets. Cost savings from this acquisition have been greater-than-expected.

PNC Financial has a stable balance sheet. It remains core-funded, with a loan-to-deposit ratio of 84% as of Dec 31, 2009, the lowest among its peers, which implies a liquid balance sheet. PNC Financial has been profitable in every quarter since the economic downturn began in the middle of 2007.

PNC Financial had received $7.7 billion under TARP to help fund its $5.2 billion acquisition of Cleveland-based National City Corp. in Oct 2008, in exchange for 15% of its stake to the U.S. Treasury. In relation to TARP, PNC had paid $332 million in preferred dividend in 2009.

Other large regional banks that are yet to repay the TARP money include Fifth Third Bancorp (FITB), KeyCorp (KEY), Regions Financial Corp (RF) and SunTrust Banks Inc (STI). Regional banks are finding it difficult to pay back the loan as their greater concentration in commercial property loans has seen mounting defaults.

Recently, Bank of America Corp. (BAC), Wells Fargo (WFC) and Citigroup Inc. (C) have repaid their bailout funds and freed themselves to set their own policies on executive pay.

Read the full analyst report on "PNC"
Read the full analyst report on "BK"
Read the full analyst report on "FITB"
Read the full analyst report on "KEY"
Read the full analyst report on "RF"
Read the full analyst report on "STI"
Read the full analyst report on "BAC"
Read the full analyst report on "WFC"
Read the full analyst report on "C"
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