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PNC Considers Selling BlackRock Stake

Stocks in this article: PNC BLK USB WFC

That is a respectable ROCE in the current environment, however, it pales when compared to U.S. Bancorp (USB) of Minneapolis, the shining star among large regional banks, with a first-quarter ROA of 1.65% and ROCE of 16.0%. Wells Fargo (WFC) has a national footprint, but is often thrown in for comparison to the large regionals, and reported a first-quarter ROA of 1.45% and a return on average common equity of 14.16%, according to Thomson Reuters Bank Insight.

Johnson on Tuesday discussed how the company is seeking to improve its efficiency ratio, which it reported to be 63% during the first quarter. "That's not good enough, and I think we get that," he said. "A lot of that is because of the bets we have on the table, the majority of those bets, the investments that were made and how long it's going to take to get a return on those, and that's one of the reasons we focus so hard on expenses."

The efficiency ratio is, essentially, the number of pennies of expenses incurred for each dollar of revenue; lower is better. U.S. Bancorp's first-quarter efficiency ratio was 50.7%, while Wells Fargo reported an efficiency ratio of 58.3%.

When discussing PNC's efforts to improve the efficiency ratio, Johnson said, "I think we need to be in the high 50s." He threw a big bone to investors when he said "the business model will generate over time mid-teen return on tangible equity."

Johnson plans to step down from his chief financial officer role in the third quarter, with PNC veteran Robert Reilly slated to take over the position. In April, William Demchak took over as PNC's CEO, with former CEO James Rohr taking the position of executive chairman, with plans to retire in 2014.

Atlantic Equities analyst Richard Staite rates PNC "overweight," with a price target of $76. Staite discussed Johnson's comments on a possible sale of the BlackRock stake and efficiency improvements in a note to clients on Wednesday, writing that "we welcome such comments and see them as an indication that new management is more focused on driving shareholder returns."

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