PNC Financial Services Group Inc. announced its second balance-sheet restructuring in less than a month.
The $94.9 billion-asset Pittsburgh company said Thursday that when it reports third-quarter earnings next month it will report a $50 million charge to securitize $2 billion of residential mortgages.
In a Securities and Exchange filing Thursday, PNC said it will reclassify the loans as held for sale as of Sept. 30.
On Sept. 8, PNC said it would take a $200 million charge on the sale of $6 billion of securities. At the time it said the move was driven partly by the Federal Open Market Committee's decision in August to hold interest rates steady. The Fed left rates unchanged again this month.
Fred Solomon, a PNC spokesman, said it made the latest restructuring "primarily because the interest rate is what it is." The company plans to replace the loans with "higher-yielding residential mortgages" that have yet to be originated.
Next year, PNC expects a $25 million benefit from the latest restructuring and a $55 million benefit from the Sept. 8 one, he said. "This will boost our net interest income and net interest margin at a time when analysts say most banks' margins will be flat or drop."
Robert H. Hughes, an analyst at Keefe, Bruyette & Woods Inc., said in an interview that PNC has been opportunistic this quarter in preparing for next year.
The latest restructuring "will clearly set them up for a better 2007," Mr. Hughes said.
PNC also has a financial cushion, since it expects to book a $1.6 billion after-tax gain when Merrill Lynch & Co. Inc. sells its investment advisory unit to BlackRock Inc., a New York company majority owned by PNC.
Gary Townsend, an analyst at Friedman, Billings, Ramsey & Co. Inc., wrote in a research note that PNC is "adeptly making these adjustments" in the same quarter it expects to book the gain from the BlackRock deal, which is expected to close Friday. PNC's 70% share in BlackRock would be halved, and Merrill would get a little less than 50% of the company.
The charges would reduce the tax PNC would pay as a result of the transaction, Mr. Townsend wrote.
Investors pushed PNC's shares up 2.4% on Sept. 8. However, they did not greet the latest announcement as warmly. Shares fell 0.03% Thursday.
Before the announcements, analysts considered PNC's balance sheet to be neutral toward interest rate risk.
"PNC wouldn't have been my first candidate for a portfolio restructuring," Mr. Hughes said.
However, the bond market's recent rally may persuade other banking companies to consider mimicking PNC, he said.
"I think there's a very good chance that we're going to see more interest in undergoing some portfolio restructurings," Mr. Hughes said. "All these companies that are not putting up good years this year might as well do what they can now to set themselves up for a better 2007, and the recent bond market rally probably makes it a little bit more palatable."
