PNC Bank Corp. said Friday that it had suffered a $79 million loss after selling $1.8 billion of fixed-rate securities in the last week of December, a move that will push fourth-quarter earnings sharply below Wall Street expectations.
The bank said it will likely report earnings of $136.9 million, or 58 cents a share, for the fourth quarter, 19.4% less than the $170 million, or 72 cents a share, anticipated by analysts. Those results are also 19.8% less than the $171.4 million it earned in the same period of 1993.
The Pittsburgh-based bank is trying to repair a securities portfolio rocked by rising interest rates. Analysts said the $64 billion-asset bank will probably feel reverberations from 1994's Federal Reserve Board moves for the next two years.
At the same time PNC repairs its portfolio, it will take a $31 million restructuring charge to cover the costs of consolidating its existing telephone banking centers and to close branches.
The bank is hoping to close 30% of its 612 branches in the next three years to develop its home banking business.
"Hopefully, it's a catharsis for the company," said Morgan Stanley's Dennis Shea. "It can now move beyond trying to manage this interest rate risk. I think the company is looking at this as a turning point," he said.
Still, PNC has one of the most toxic securities portfolios in an industry that saw $12 billion in losses this year, according to M.R. Beal & Co.
PNC saw earnings drop 13.6% in the third quarter to $188 million, or 79 cents a share, from $217.7 million, or 91 cents a share, for the same period a year ago.
Thomas H. O'Brien, the bank's chairman and chief executive officer, said, "The actions we have taken are part of a continuing plan to reduce PNC Bank's interest sensitivity and align our balance sheet with our business strategies.
"As a result, we have eliminated the company's liability sensitivity at one year and mitigated the impact of significantly higher interest rates on net interest income," he added.
In addition to the sale of securities, the bank took other actions in the fourth quarter. It said in a statement that it had purchased "interest rate caps and fixed-pay swaps with a combined notional value of $10.5 billion."
As part of the repair job, the bank is shedding about $8 billion of assets, according to Merrill Ross, an analyst at Wheat First Butcher & Singer. In addition to the sale of $1.8 billion of fixed-rate securities, the bank will reduce about $2 billion of its low-yielding corporate loans, she said.
Finally, $4.2 billion of assets will be reduced when much of the bank's portfolio of collateralized mortgage obligations mature.
In a move to offset any losses in earnings, the bank said it plans to buy back 24 million shares of its stock in the next two years. PNC has already repurchased 2.8 million common shares, it added.
The repurchases would be accompanied, it said, by a reduction in the bank's investment portfolio to $17 billion at yearend 1995 from $22.9 billion last Sept. 30.
Analysts said the bank took the correct action for the long term, but the short-term outlook looks grim.
"They took interest rate risks in late '93 and early '94," Ms. Ross said. "They're paying for it now, and they're going to pay for it in the next two years."
The bank said full-year earnings will probably be $610 million, or $2.56 a share. That compares to $725.8 million, or $3.13 a share, in 1993. Analysts had expected PNC to show net income of $3.19 per share for 1994.