Analyst lowers rating on PNC Financial Services

NEW YORK -- An analyst downgraded PNC Financial Services' rating on Wednesday, saying the bank's third-quarter net interest margin compressed more than expected and its preferred dividends will likely rise considerably next year.

On Tuesday PNC Financial reported that its third-quarter net income climbed 6 percent, boosted by a one-time gain from a sale of Visa shares and higher fees from corporate clients.

Christopher Mutascio of Stifel Nicolaus said in a client note that the company's third-quarter net interest margin of 3.82 percent came in below his forecast for 3.95 percent.

Net interest margin is the difference between interest a bank collects on loans and interest it must pay to depositors and other lenders.

The analyst said this lower net interest margin, combined with a lower average earning asset base, puts net interest income at a much lower starting point.

Net interest income combines income from interest on loans and the cost of interest paid to depositors and lenders.

Mutascio said he's also not convinced that Wall Street has fully accounted for how much PNC Financial's preferred dividends are going to climb next year.

PNC issued $480 million of preferred stock in late September and early October, bringing total issuances of preferred stock for the year to date to about $2 billion. The company paid $63 million in preferred dividends during the third quarter, up from $4 million a year earlier.

The analyst cut the Pittsburgh company's rating to "Hold" from "Buy."

Sterne, Agee & Leach's Todd Hagerman said that PNC Financial's quarterly earnings and slowing growth disappointed a bit, but that the company is still well positioned to regain earnings momentum heading into 2013.

The analyst maintained a "Buy" rating.

PNC Financial Services Group Inc.'s stock declined $1.21, or 2 percent, to $59.19 in afternoon trading.