PNC Financial Services CFO doesn’t see quick end to economic pain 

By ARIELLE KASS8:00 am, February 25, 2010

The chief financial officer of PNC Financial Services Group said it’s the bank’s business model that has kept it steady in the face of a financial crisis and dramatic growth, but that it will still be some time before the pain in the economy ceases. CFO Rick Johnson said with the National City Bank acquisition and across its portfolio, PNC is dedicated to maintaining a moderate risk profile and working to constantly improve. Mr. Johnson told members of the CFA Society of Cleveland at a lunch Wednesday, though, that credit utilization remains low and commercial real estate will present a “real challenge for everybody.” “The next shoe is going to drop,” he said. “It’s going to be a slower shoe, but it’s going to come.”

The bank is working to run off its distressed assets and to get rid of deposit customers who were simply rate shopping and who do not intend to have a relationship with the bank. Loans are down $18 billion, Mr. Johnson said, and will continue to be challenged, though not to the extent that they were in 2009.

But PNC has seen a $350 million gain in residential mortgage business with the addition of National City’s division, which Mr. Johnson said the bank — which had outsourced its mortgage division — is committed to keeping.

He said that in addition to fulfilling a customer need, the division allows PNC to further diversify.

Mr. Johnson said repeatedly that the bank is in a good position relative to its peers. PNC paid off more than $7 billion of federal Troubled Asset Relief Program, or TARP, money earlier this month.

He said the bank has its “work cut out” for it as it works to convert National City branches to PNC — Cleveland is set to do so in April — and that National City’s core franchise is strong, though the bank was involved in some peripheral businesses that it “couldn’t get out of.”

While being acquired is never a pleasant experience, Mr. Johnson said, he said he thought it was “going great.”

“We didn’t get everything right, but we got a lot of it right,” he said.

Mr. Johnson said PNC has been looking at Federal Deposit Insurance Corp.-related acquisitions, but has seen few that were interesting.

He said, too, that he thinks capital stress tests were a good thing for banks, even if they result in the industry carrying more capital.

“The banking industry keeps reinventing itself over time,” he said.