PNC starts the new year like the old -- on a high note
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PNC Financial Services Group kept its hot streak going yesterday by reporting $459 million in first-quarter earnings, up 30 percent from the same period in 2006.
"We are off to a great start this year," said PNC Chief Executive Officer James Rohr, repeating the exact phrase he used this time last spring.
Pittsburgh's largest bank is coming off another record year. It doubled its profits in 2006 to $2.6 billion, boosted its share price above $70 and inked a $6 billion deal to buy Baltimore blue-blood institution Mercantile Bankshares, a deal that closed last month, giving it a greater foothold in the fast-growing Washington, D.C.-Maryland-Virginia area.
It now has $123 billion in assets -- making PNC the 11th-largest bank in the country, and some bank observers predict the Downtown-based bank will look south for more acquisitions even as it tries to fill out its existing footprint in the Northeast.
"Should PNC decide to use its capital to grow its franchise, we believe it is logical to expect them to expand into Southern states from a base in Maryland and northern Virginia," said RBC Capital Markets analysts Gerard Cassidy, who follows PNC.
But which bank would PNC acquire, exactly? "That's the hard part," Mr. Cassidy said, "because banks are sold and not bought. PNC just can't go to parts of the South and say we want to buy you. It will be more of what becomes available."
In an interview yesterday, Mr. Rohr offered no hints about future moves, repeating the industry truism that banks are "sold, not bought." But he did cite PNC's recent history of moving "into markets with higher growth potential than the markets we are in," mentioning northern New Jersey, Washington, D.C., and Baltimore as three recent examples. "We have been doing this slowly and it's working for us."
Shares of PNC closed up $1.47, or 2 percent yesterday, to $75.34. First-quarter results showed gains in all areas of its business, from retail, corporate and institutional banking to back-office mutual fund processing and asset management.
A big gainer was data processing unit PFPC Worldwide, where profits increased 15 percent. There is some speculation that Mr. Rohr may be interested in selling PFPC, based in Wilmington, Del., or that activist investor Highfields Capital Management could pressure PNC to spin off part of the division as a way of creating value.
Boston-based Highfields, which purchased 525,000 shares of PNC late last year, is the same $10 billion hedge fund that in 2005 pressured former Mellon Financial Corp. boss Martin McGuinn to sell off a piece of Mellon as a way of boosting the company's share price. Mellon never took Highfields' advice but it did replace Mr. McGuinn with former Wachovia Corp. Chief Financial Officer Robert Kelly, then agreed to a $16.5 billion merger with The Bank of New York.
Mr. Rohr, when asked about Highfields and PFPC, did not rule out a sale of the mutual fund processor but he also made it clear that it was not something being considered at the moment. As for Highfields -- best known for publicly challenging former Enron Corp. boss Jeffrey Skilling about financial information before the energy giant's collapse -- Mr. Rohr said "they are investors first, not activists."
"They made an investment in the company and they have done very well with it," he added. "The stock is up significantly ... I would think they would be very happy."
First Published April 18, 2007 7:36 pm
