Foreclosure lawsuits stunt PNC profits
Costs from home mortgage foreclosure lawsuits continued to affect profit at PNC Financial Services Group, which reported lower results because of those expenses as well as costs from integrating Royal Bank of Canada's U.S. franchise.
Net income for the January-March quarter declined 8 percent to $766 million from $833 million a year earlier, PNC said on Wednesday. Results equaled $1.44 a share, compared with $1.57 a year ago. Revenue increased 2.8 percent to $3.73 billion from $3.63 billion a year ago.
The Pittsburgh bank completed the RBC acquisition on March 2, adding 424 branches in the Southeast. PNC booked $145 million in integration expenses in the quarter to fold RBC into PNC, plus an additional $40 million in operating expenses.
PNC also incurred an $38 million expense related to mortgage foreclosure-related matters connected to government legal settlements. In addition, the bank added $72 million to its reserves for future legal expenses last quarter. Bank spokesman Fred Solomon said details were not disclosed.
PNC had recorded a $240 million expense in the October-December quarter to account for "mortgage foreclosure-related expenses primarily as a result of ongoing governmental matters," it stated without providing details.
"This has plagued most of the major mortgage lenders, said David George, an analyst at Robert W. Baird & Co. Inc., St. Louis. "The vast majority of this is coming from legacy National City issues."
PNC acquired troubled National City Corp. for $5.6 billion in December 2008. Cleveland-based National City was driven toward insolvency by its plunge into subprime lending in the late 1990s, and by a foray into Florida, where National City overpaid for acquisitions.
During a conference call yesterday, CEO James Rohr said PNC is "hopeful of settling a number of lawsuits in the future," but declined to give details.
"In the first quarter, we increased our estimates based on what we think lawsuits will cost us," said Rohr. "If you look at what's going on in the industry, you'd be hard-pressed to say anything other than litigation will continue."
The nation's five biggest mortgage lenders -- Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial -- agreed to a $25 billion settlement with state and federal government agencies in February after a 16-month probe into foreclosures on homeowners without checking the paperwork. The Federal Reserve said a month ago it was fining eight other banks, including PNC, for improper foreclosures as well.
"The good news is this is likely to be less of an issue going forward," said George.
PNC shares closed at $63.78 yesterday, up 37 cents.
During the conference call, Chief Financial Officer Richard Johnson said percentage gains for PNC revenue this year should be in "the high single digits."
"We're off to a good start for the year," said Rohr told analysts. He cited the increase in revenue, loans and checking accounts, as well as the successful conversion of Royal Bank of Canada systems and customers, and the business opportunities they represent for PNC.
For instance, RBC added some 460,000 new checking accounts to PNC, as well as about $12 billion in retail deposits and about $5 billion in loans.
PNC employs nearly 8,000 people in Western Pennsylvania. It has about 56,600 workers overall, including about 4,700 added by RBC last quarter.
Including RBC, PNC now operates about 2,900 branches and 7,220 automated teller machines in 17 states plus Washington.
Show commenting policy