Skip to main content

PNC Financial

(PNC) - Get PNC Financial Services Group Inc. (The) Report

says it will incur a $200 million pretax loss as it takes steps to restructure its investment portfolio in light of the

Federal Reserve's

decision to hold the line on future interest rate hikes.

The Pittsburgh-based regional lender says that as part of the restructuring it will sell about $6 billion in securities, resulting in the estimated $200 million loss.

"As a result of these actions, management believes that it will reduce its securities portfolio credit spread and interest rate volatility exposures," PNC said in a regulatory filing. "In addition, it will position the securities portfolio for a steeper yield curve while maintaining flexibility to extend duration through the interest rate cycle."

PNC says it began reassessing its investment portfolio in mid-August, after the Federal Reserve decided not to raise interest rates again.

Scroll to Continue

TheStreet Recommends

Banks are particularly sensitive to fluctuations in interest rates.

A change in interest rates not only impacts the rate it charges borrowers, but influences a bank's own borrowing cost and the interest it pays to depositors.

One way banks make their money is by reinvesting customer deposit into higher-yielding securities. In recent years, many banks have invested in mortgage-backed securities. But the value of the securities fluctuates depending on the direction of interest rates.

In the coming weeks, bank analysts say that other lenders may begin to reposition their balance sheets and investment portfolios as the Fed appears ready to sit on its hands when it comes to future interest rate hikes.

But it wasn't all bad news at PNC.

The bank said that the Fed's decision to stop cutting interest rates should improve its net interest margin and boost net interest income by $50 million over the next year.

Net interest income is the profit generated from the bank's deposit and lending operation.

Over the past few years, PNC, like many banks, has found it difficult to boost its net interest income because of the narrowing spread between short- and long-term interest rates.

The so-called flattening yield-curve effect has left banks with fewer high yielding opportunities to invest customer deposits.