Moody's Cuts PNC Debt, Preferred Stock Ratings
The Associated Press
05/12/09 - 04:59 PM EDT
NEW YORK (AP) — Moody's Investors Services on Tuesday cut its ratings on PNC Financial Services Group Inc., citing implications from its acquisition late last year of National City Bank.
The ratings agency cut Pittsburgh-based PNC Financial Services Group Inc.'s senior debt rating to "A3" from "A1," its subordinated debt rating to "Baa1" from "A2" and the preferred stock rating to "Baa2" from "A3." The holding company's short-term debt rating was downgraded to "Prime-2" to "Prime-1."
All of these ratings remain investment grade.
Moody's also cut the long-term ratings of PNC Bank NA and National City Bank, the two main bank subsidiaries of PNC Financial. Both banks' financial strength ratings were lowered two notches, to "C+" from "B." Their long-term deposit and senior debt ratings were lowered to "A1" from "Aa3," and their subordinated debt ratings were cut to "A2" from "A1."
The banks "Prime-1" short term ratings were affirmed.
Moody's said the outlook on PNC and its subsidiaries is negative. If the recession is deeper and longer lasting than currently expected, or if PNC mishandles the combination with National City, negative rating pressure could emerge, the agency said.
The actions had no impact on FDIC-guaranteed debt issued by PNC, which remains rated "Aaa" with a stable outlook.
The downgrades came less than a week after PNC was named as one of the banks that didn't pass the government's "stress tests." PNC needs to raise $600 million, the Treasury Department said. Moody's said it believes PNC can "comfortably raise that amount of equity."
PNC received about $7.6 billion in emergency funding through Treasury's Troubled Asset Relief Program.
Moody's said the downgrades reflect its belief that while the National City buyout will add value to PNC in the long term, it has weakened the bank in the short term. "Moody's believes PNC's tangible common equity ratio is somewhat low when compared with the potential credit costs it faces in the near-term, largely related to real estate exposures," the downgrade said.
The ratings agency said the bank needs to strengthen its common equity position, and must find a way to combine the two banks. Longer-term, PNC faces difficulty trying to grow its banking franchise in National City markets like Michigan, Northern Ohio and Florida, all areas that continue to suffer because of the real-estate crisis.
Moody's said PNC appears to be accounting for National City's struggling loan portfolio and the overall costs of the souring credit appear manageable. However, the timing of such costs could hurt PNC's metrics in the coming quarters, which factored into the downgrades.
PNC shares closed Tuesday's regular trading session down $1.89, or 4 percent, at $44.79, then regained 70 cents to trade at $45.49 in aftermarket activity. The stock has changed hands between $16.20 and $87.99 in the past 52 weeks, and started the day down about 5 percent since the start of the year.
