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Interest concerns weigh on PNC shares after 3Q

Tuesday, 16 Oct 2012 | 3:31 PM ET

BOSTON -- Investors, concerned about PNC Financial Services Group Inc.'s ability to grow profit amid record-low interest rates and increasing expenses, drove down the bank's shares Tuesday after its third-quarter results.

THE SPARK: While PNC's net income grew 6 percent in the July-September quarter, topping analysts' average estimate, analysts were worried about a decline in an industry measure called the "net interest margin."

The metric, which tracks the difference between interest collected on loans and interest paid to depositors and other lenders, is key to a bank's profitability. It fell to 3.82 percent in the third quarter from 4.08 percent in the second quarter.

THE BIG PICTURE: PNC, which is based in Pittsburgh, runs banks in Pennsylvania, New Jersey, Virginia, Maryland, Ohio, Kentucky, Delaware and Washington D.C. It has about $300 billion in assets.

Pressure from low rates is not just a problem for PNC. Interest income has been declining recently at many other banks as low interest rates and strong competition for deposits chisel away at profitability.

THE ANALYSIS: Citi analyst Keith Horowitz said the third-quarter results "look a little soft" overall. Horowitz cited expense growth, including compensation, as a concern as well as problems stemming from low rates.

SHARE ACTION: Shares of PNC Financial fell $2.67, or 4.2 percent, to $60.26 in afternoon trading. The stock has traded in a 52-week range of $48.80 to $67.89.

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