PNC to increase cost-cutting to maintain profit momentum, CEO says
By Thomas Olson
Published: Thursday, Jan. 17, 2013, 10:04 a.m.
Though PNC Financial Services Group's profit jumped 47 percent in the fourth quarter, its CEO said Thursday the bank likely will cut $700 million in costs this year to maintain that profit momentum.
“We have to continue taking expenses down, there's no question about that in this low interest-rate environment,” CEO James Rohr told analysts on a conference call. Low interest rates cut into what banks can earn on investments and loans.
PNC shares closed at $62.01, up $2.23.
The bank planned to reduce operating expenses about $500 million in 2013. Rohr said PNC would adopt the higher, $700 million, cost-cutting target because interest rates probably will not rise and because the pace of economic growth is unlikely to pick up significantly.
Rohr said most of the cost reductions would come from its retail banking business. PNC would save money as customers shift from doing business through tellers at branches, which costs nearly $4 per transaction, he said. By contrast, an ATM transaction costs about 85 cents, and an online transaction costs about 17 cents, according to industry research. PNC is a leader in deploying alternate banking methods for customers.
PNC posted a quarterly profit of $664 million, versus $451 million a year earlier, on stronger results from its retail and corporate banking segments, particularly from growth in loans.
Total loans of $186 billion at yearend were 17 percent above year-ago levels, and 2 percent ahead of levels on Sept. 30. About $109 billion were commercial loans, with growth in the health care, public finance and real estate segments.
Consumer loans grew 9 percent to $77 billion, including more than $15 billion in home loans, a 33 percent increase from a year earlier.
“PNC's residential mortgage business was quite strong in the fourth quarter, said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine. He said PNC's commercial loan growth was “favorable,” as were other big banks' last quarter.
The earnings equaled $1.24 per share, compared with 85 cents a year earlier. The results include one-time charges equaling 47 cents a share, disclosed last week, related to its home mortgage business and other issues.
Rohr told analysts he was “pleased but not entirely satisfied” with PNC's results because they didn't fully reflect the bank's potential.
The bank added 254,000 checking accounts in 2012, for example, on top of 460,000 accounts obtained from its acquisition of RBC USA's franchise in the Southeast in March.
Retail banking income doubled to $121 million in the fourth quarter from growing loan volume; corporate banking grew nearly 9 percent to $649 million.
The one-time charges amounting to $390 million relate to the bank's home-mortgage banking business, including $70 million that was part of a recent 10-bank settlement with the government over improper lending practices. The entire $8.5 billion settlement with regulators covered 3.8 million homeowners in foreclosure in 2009 and 2010.
Included in that $390 million was $254 million PNC paid Fannie Mae and Freddie Mac last quarter to buy back mortgages the bank sold to them.
“The question that's hard to answer is, what comes next?” said Terry McEvoy, an analyst at Oppenheimer & Co. “Will those expenses continue to elevate or go back to an environment where those costs normalize?”
Rohr told analysts: “Hopefully, we won't have the same mortgage charges in 2013.”
Thomas Olson is a staff writer for Trib Total Media. He can be reached a 412-320-7854 or at email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- PNC plans to do away with tellers
- RBS group finance director to step down
- With new composure, Nasdaq marches toward its dot-com peak
- Lululemon to make changes in top brass
- Nestle cuts ties with farm over dairy cow abuse
- Poll: Women’s pay up, but so is negativity
- Wholesale stockpiles up 1.4% in October
- Barra breaks GM glass ceiling
- Stocks decline on heels of record close
- Credit card companies offer free credit scores
- Education Management Corp. suit settled for $3.4 million