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6 pts

Opinion on  The PNC Financial Services Group Inc. (PNC)     Sector: Financial  >  Industry: Regional Banks
PNC's faces $14bn of HELOCs and Market Street assets

Jun 11, 2008 07:46 AM UTC
Return Risk
+45.14% HIGH
Analyst

PNC faces significant challenges from its low capitalisation and its poor quality asset portfolio.
Total asset backed securities of $28bn comprising: RMBS $20.7bn (either US govt agency issued or rated AAA), CMBS $4.9bn and other ABS $2.4bn.
The loan portfolio totals HELOCs $14.1bn and home mortgages of $1.8bn of which 61% are second lien.
PNC provides off-balance sheet liquidity commitments to Market Street of $7.8 billion and other credit enhancements of $0.7 billion.  With a CP market once again illiquid, these assets will now be migrating to PNC’s balance sheet and the credit risks will now be sheeted home to PNC. The assets of Market Street consist primarily of automobile loans, purchased receivables, and credit card loans. At least this is not sub-prime mortgages.
Based on this situation, PNC’s present total assets of $131bn will increase $8.5bn to almost $140bn. The book equity of $14.5bn will be significantly reduced post writedowns of its assets by around $6.8bn (based on market assumptions). This will decrease BV equity to around $8bn. Tier 1 capital is now only 7.5% and this writedown will drop below the regulatory minimum of 4%.
Expect share price to drop over next 6 months to around $25 to $35.


PNC:  This call was made on 06/11/08 @ $59.98
Rating:   Negative   $59.98 (06/11/08)
Gain/Loss:   +28.69% in 174 days


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