Last updated: July 21, 2011 4:21 am

PNC seeks deals as profits rise 14%

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PNC, the sixth-largest US bank by deposits, reported increased second-quarter profits that beat analysts’ estimates and said it would look at opportunistic acquisitions after its purchase of Royal Bank of Canada’s US retail business.

The Pittsburgh-based regional lender said it was seeing signs of loan growth as it reported a 13.6 per cent rise in net profit to $912m, or $1.67 a share, up from $803m, or $1.43 a share in the same quarter last year. Analysts had expected earnings of $1.46 per share.

PNC cut its reserves set aside for bad loans from $823m a year earlier to $280m, offsetting a decline in revenue, which fell from $3.9bn in the second quarter last year to $3.6bn. The bank said it would pay a dividend of 35 cents a share compared with 10 cents in the same quarter last year.

Both PNC and US Bancorp, which reported improved earnings of $1.2bn on Wednesday, said loan demand was increasing but net interest margin – the returns on loans after paying interest to savers – was flat or shrinking.

Regulatory changes would hurt PNC, with a new cap on debit card fees charged to retailers costing up to $500m. “The idea that we’ve got the government setting prices is bad policy, I believe,” said James Rohr, chief executive. “It’s wrong.”

But he said the bank was mitigating the effect by moving customers from free current accounts to paid-for products.

PNC owns 22 per cent of BlackRock, the world’s biggest money manager, which also reported improved results on Wednesday. Mr Rohr suggested that stake was there to stay.

“You could always sell it if you wanted to but the way we carry it and allocate capital to it we generate 20 per cent returns.”

He said the bank was still looking for acquisitions, though these were likely to be smaller groups of branches in specific markets. “We’re always opportunistic,” he said. “This one [RBC] was probably the biggest one we could see anywhere on the horizon.”

PNC is waiting to hear from regulators whether it needs to issue common equity for the $3.5bn RBC deal.

But Mr Rohr said the bank believed it had about 8 per cent of tier one common equity capital under new Basel III standards compared with 10.5 per cent under existing requirements, both relatively strong.

He said PNC had been conservative in its plan for capital pay-outs that was approved by the Federal Reserve earlier this year, as it wanted to be sure to pass, suggesting that there could be higher dividend pay-outs, or increased share buy-backs ahead.

Shares in PNC fell $0.20, or 0.4 per cent, to $55.63.

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