EU and US could reach trade deal this weekend - Reuters
Investing.com -- Moody's Ratings has raised the subordinate bond rating of PNC Bank, N.A. to A2 from A3, including its assumed subordinate debt of BBVA (BME:BBVA) USA. Alongside this, the subordinate bank note program rating was also upgraded to (P)A2 from (P)A3. However, all other ratings and assessments of PNC Financial Services Group (NYSE:PNC), Inc. and its subsidiaries, collectively referred to as PNC, have been affirmed.
The parent company, PNC Financial Services Group, Inc., maintains an A3 rating for senior unsecured debt. Its bank subsidiary, PNC Bank, N.A., holds an a2 Baseline Credit Assessment (BCA), long-term deposit ratings of Aa3, and senior unsecured debt ratings of A2.
The outlook for PNC Financial Services Group, Inc.'s long-term issuer and senior unsecured debt ratings, as well as PNC Bank, N.A.'s long-term issuer, deposits, and senior unsecured debt ratings, remains negative.
The upgrade in the subordinate bond rating reflects PNC's increased reliance on holding company debt as a part of its funding strategy. This strategy reduces the loss given failure for the bank-level subordinated debt. Moody's believes that PNC is likely to maintain its higher mix of holding company debt.
PNC's a2 BCA reflects the bank's balance sheet strengths and revenue diversity. PNC operates a large direct banking franchise throughout most of the US, resulting in good geographic diversity and a sizable, low-cost core deposit base. The bank's asset quality and risk management are robust.
Despite facing operating environment and funding pressures over the last several years, PNC's profitability has been somewhat less affected than many rated bank peers. This is due to its lower risk tolerance to interest rate risk and its comparatively lower level of long-term fixed rate assets. However, the bank's current net income to average assets at just over 1.0% is well below the 1.4% average from 2017 to 2019.
PNC's capital has improved over the last year with the company's CET1 ratio on a standardized approach basis at 10.5% as of December 31, 2024, up from 9.9% a year ago. The bank's Tangible Common Equity to Risk Weighted Assets was also 10.5% as of December 31, 2024, up from 9.8% a year ago.
In the Federal Reserve's 2024 Dodd-Frank Act stress test, PNC's projected peak to trough decline in CET1 of 1.6% in the severely adverse scenario was the fourth best among the 31 banks subject to the exercise and the best among commercially-focused banks.
Despite strong asset quality and risk management, the negative outlook reflects Moody's view that profitability is below their expected through-the-cycle average ROAA. While PNC's capital levels are improving, they remain a credit weakness for such a highly-rated bank.
The outlook could be stabilized if PNC's capitalization and profitability continue to improve and the ratio of liquid banking assets to tangible banking assets sustainably remains above 30%, with maintained strong asset quality, strong risk management and a strong funding profile. A downgrade could occur if these metrics do not meet expectations.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.