Fitch Ratings has affirmed
The Rating Outlook remains Stable.
A full list of rating actions is at the end of this rating action commentary.
PNC's announced purchase of BBVA would create a bank with over
The transaction is projected to close in mid-2021, subject to customary closing conditions, including regulatory approvals.
KEY RATING DRIVERS
IDRS and VIABILTY RATING (VR)
The affirmation of PNC's ratings reflect Fitch's view that risks associated with integration of such a large transaction are offset by the strategic and financial benefits as well as PNC's proven ability to execute on past large transactions.
The affirmation and Stable Outlook also reflect that Fitch had expected PNC to use the
Fitch believes the proposed purchase of
Fitch believes there are notable execution risks associated with the proposed purchase, particularly around realizing targeted returns during a reasonable time frame. However, in Fitch's view, these risks are somewhat mitigated by the relatively low purchase price multiple PNC is paying and the pro forma allowance for credit losses (ACL) related to
HOLDING COMPANY AND SUBSIDIARIES
PNC's IDR and VR are equalized with those of its operating companies and bank, reflecting its role as the bank holding company, which is mandated in the
The VR of
LONG- AND SHORT-TERM DEPOSIT RATINGS
The uninsured deposit rating of PNCBNA is rated one notch higher than PNCBNA's IDR and senior unsecured debt because
SUPPORT RATING AND SUPPORT RATING FLOOR
PNC has a Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF'. In Fitch's view, the probability of support is unlikely. The IDRs and VRs do not incorporate any support.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid capital issued by PNC are all notched down from the common VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably.
PNC's holding company-issued subordinated debt is two notches below the bank's VR. In accordance with Fitch's Bank Rating Criteria, this reflects the baseline notching for loss severity of two notches. PNC's holding company-issued subordinated debt does not meet the specific conditions under our criteria for applying a one notch variance from the VR.
PNC's bank-level subordinated debt is notched one level below its VR for loss severity. In accordance with the Bank Rating Criteria, this reflects alternate notching to the base case of two notches due to Fitch's view of
PNC's preferred stock rating of 'BBB' is notched four levels below its VR. This encompasses two notches for non-performance and two notches for loss severity. PNC's trust preferred securities remain four notches from the VR, encompassing two notches for non-performance and two notches for loss severity.
SENIOR DEBT
PNC's holding company senior unsecured debt rating is one notch below its LT IDRs, reflecting expected below average recoveries in a resolution scenario given the fact that its debt buffers are clearly below 10% of risk-weighted assets (RWA).
PNC's bank-level senior unsecured debt rating is equalized with its LT IDR. This reflects the use of alternate notching for its subordinated debt, as applicable, of one-notch in which case the agency does not notch down senior unsecured debt. It also reflects the expectation of average recoveries for senior unsecured debt holders at the bank-level driven by Fitch's view of
RATING SENSITIVITIES
IDRs and VRs
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch is sensitive to the timing of this proposed acquisition. The agency continues to expect a more-challenging operating environment due to the coronavirus pandemic, which will likely translate into higher credit losses across the industry as well as more depressed earnings performance for most
Moreover, post-close, should PNC manage its reported CET1 ratio below 9% for a number of quarters while its execution of the proposed acquisition is in its infancy, the bank's rating and/or Rating Outlook would likely be adversely impacted. Moreover, integration failures that cause PNC to not successfully achieve deal economic forecasts could pressure the rating.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch does not foresee an upgrade in PNC's ratings over the near term in light of the pending purchase as well as likely lingering risks associated with the continued economic fallout from the coronavirus pandemic.
However, over the medium term, if the bank adequately executes on this strategically compelling transaction that enhances its overall business model and franchise, in Fitch's view, while maintaining its perceived conservative risk appetite, the bank could see positive ratings momentum. This would also be predicated on the bank continuing to have an earnings profile in-line with higher rated peers, maintenance of capital at appropriate levels, and consistent asset quality measures.
HOLDING COMPANY AND SUBSIDIARIES
Should PNC's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. Fitch does not expect such a scenario at PNC's current high rating levels.
LONG- AND SHORT-TERM DEPOSIT RATINGS
The long- and short-term deposit ratings are sensitive to any change to PNCBNA's Long-and Short-Term IDRs.
SUPPORT RATING AND SUPPORT RATING FLOOR
Since PNC's SR and SRF are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid ratings are primarily sensitive to any change in PNC's VR.
SENIOR DEBT
Senior debt ratings are sensitive to changes in the IDR. The ratings of PNC's holding company issued senior debt are also sensitive to Fitch's analysis to determine whether the amount of debt buffers is clearly below 10% of risk-weighted assets.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONS
ENTITY/DEBT RATING PRIOR
PNC Bank, National Association LTIDR A + Affirmed A+
ST IDR F1 Affirmed F1
Viability a+ Affirmed a+
Support 5 Affirmed 5
Support Floor NF Affirmed NF
senior unsecured
LT A+ Affirmed A+
subordinated
LT A Affirmed A
long-term deposits
LT AA- Affirmed AA-
short-term deposits
ST F1+ Affirmed F1+
senior unsecured
ST F1 Affirmed F1
long-term deposits
LT AA- Affirmed AA-
senior unsecured
LT A+ Affirmed A+
senior unsecured
ST F1 Affirmed F1
PNC Capital Trust C
preferred
LT BBB Affirmed BBB
National City
senior unsecured
LT A+ Affirmed A+
short-term deposits
ST F1+ Affirmed F1+
long-term deposits
LT AA- Affirmed AA-
PNC Financial Services Group, Inc. LTIDR A + Affirmed A+
ST IDR F1 Affirmed F1
Viability a+ Affirmed a+
Support 5 Affirmed 5
Support Floor NF Affirmed NF
subordinated
LT A- Affirmed A-
preferred
LT BBB Affirmed BBB
senior unsecured
LT A Affirmed A
senior unsecured
ST F1 Affirmed F1
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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