Shares of PNC Financial Corp. are moving back toward the higher prices reached after a hefty dividend increase was announced.
On Oct. 1, the Pittsburgh company raised the quarterly payout on its common stock by 7.5% and announced a 2-for-1 stock split.
The actions initially caused PNC stock to surge by about $3, or 5%, to $53.
However, the gains quickly evaporated, with the stock dropping as low as $51.75 on Oct. 7 and 8.
Analysts said PNC shares were hit by investors' general lack of enthusiasm for bank stocks in recent weeks.
|Steady Stock, Lousy Market'
The shares have been on the rebound this week, however. On Thursday, PNC stock was trading at $52.875, up 25 cents.
"Actually, it has been a steady stock in a lousy market," said Nancy A. Bush of Brown Brothers, Harriman & Co., New York. "There is a profound lack of direction in both the economy and the market right now."
Anthony Davis, bank analyst at Wheat First Securities, Richmond, Va., said he was surprised by the size of the dividend increase, to 57 cents per share, from 53 cents. It is payable Oct. 24 to shareholders of record of Oct. 13.
Broader Appeal Noted
Ms. Bush said she had expected a nominal dividend increase this year and a more substantial one next year.
The stock split is effective Nov. 16 for holders or record of Oct. 22. Since a $50 price level is a psychological barrier for some investors, the split should broaden the appeal of the stock and lessen its volatility, Ms. Bush said.
Analysts view PNC's dividend action as the first of a series by the quality regional and superregional banks.
Capital levels at many banks have been growing faster than new assets because of continued sluggishness in lending. This has created excess capital, which banks must pay out in dividends or face lower returns on equity.
"PNC is probably in a leadership role on this," said Frank Suozzo of S.G. Warburg & Co. "I think PNC's action will be repeated elsewhere by the strong banks in markets where asset growth is slow."
Agreeing, Mr. Davis said bank credit still amounts to 17% of the nation's gross domestic product at June 30. Historically, the level is about 16% but falls as low as 14% during a recovery from recession.
Quick Rebound Seen Unlikely
As a consequence, the analyst believes bank lending is unlikely to pick up significantly before 1994.
Meanwhile, many banks may revise dividend policies and Mr. Suozzo believes dividend payments as a percentage of earnings could move toward 50% from the 35% level of recent years.
Meanwhile, PNC's stock may get another lift next week when its reports third-quarter earnings.
According to First Call, an affiliate of American Banker that tracks earnings estimates, the median projection for PNC's third-quarter net is $1.15 per share, against $1.09 earned in the third quarter a year ago.
Analysts expect PNC to reduce its loan-loss provision from the $100 million level of the second quarter. However, banks that have reported earnings so far have not cut provisions sharply.
A Cautious Style
Mr. Davis noted the bank's management had previously stressed that it would take a conservative approach to reserve levels.
Ms. Bush said that most banks are maintaining or even building higher reserves against possible loan losses.
"Nobody so far this [earnings reporting] season has played the provision card," she said.
She pointed out that SunTrust Banks Inc., the Atlanta super-regional banking company respected for its conservative corporate culture, built its provision another $27 million for the quarter.