One on One with James Rohr, CEO, PNC Financial
Monday, May 11, 2009
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SUSIE GHARIB: Now that the nation's biggest banks have the results of their stress tests, many of them have new homework assignments from the government. PNC Financial, for example, needs to raise $600 million. Joining us now is the Pittsburgh bank's chairman and CEO. Mr. Rohr, welcome to NIGHTLY BUSINESS REPORT.
JAMES ROHR, CHAIRMAN & CEO, PNC FINANCIAL: Nice to be with you, Susie, thank you.
GHARIB: All right, so you have until June 8th to present your plan to the government on how you're going to raise the $600 million. What is your plan to raise the capital? Where are you going to get it from?
ROHR: We were comfortable with the analysis that the government made and $600 million is not a great deal of money for our capital structure. We earned $530 million in the first quarter. So what we can do is we can actually utilize our earnings capacity in the company as well as some relatively modest capital markets activities in order to meet the $600 million requirement that actually comes due in November. So we'll have the plan that we'll submit in early June to the regulators and hopefully work with them on a plan that will allow us to get to November rather comfortably.
GHARIB: Let's say that the economy gets worse in the meantime. Let's say that you have some problems with your commercial real estate loans for example. What's your plan B for coming up with that capital?
ROHR: Well the plan actually would include some capital markets activities which we would probably involve -- be involved with in the next month or so, so we can put some cushion between ourselves and the November date.
GHARIB: What does all of this mean for lending? I talked to some analysts and they said they're kind of are concerned by these new requirements might mean that you're going to have less money to loan to consumers or to businesses, going to make it more difficult for them.
ROHR: I would certainly hope that wouldn't be the case. We were well capitalized prior to the National City acquisition that took place at the end of the last year and we were well capitalized coming out of that transaction. So the government's analysis really takes a well-capitalized bank and takes an adverse view on what might happen over the next two years and then places a buffer on that and that's the buffer is the piece that generates the $600 million capital raise requirement. When we think of our lending activity, we're very, very liquid. We have an 88 percent loan to deposit ratio, which means that we've got our core deposits that we could sill lend out. So we've been aggressive in lending money. We've participated in the programs on the mortgage side the government's put together and in the first quarter alone, we increased originations by $26 billion for our customers and prospects so we're still very, very active in the lending business.
GHARIB: Mr. Rohr, you mentioned National City Bank of Cleveland that you purchased in the height of the financial crisis and I know you inherited a lot of problem loans and I understand that you have written off a lot of that. But are there any trouble spots with the National City acquisition? Do they have any other problems hanging (ph) out there for you?
ROHR: Certainly we took down a great deal of loans in the National City case. The nice thing was was that by closing at the end of the year, we were able to take write-downs and additions to reserves that added up to almost $12 billion. So we did take a lot of the stress out of their portfolios prior to January 1 and I think that was very, very good. Now the economy has deteriorated a bit since that time and of course that's our legacy portfolio plus the National City portfolio. And so we're happy to deal with that. I think 2009 is going to be a difficult year for the industry but I think we're well positioned to get through '09 and '10 as we did in the first quarter.
GHARIB: Where do you see the economy going based on the feedback you're getting from a lot of the businesses that you're dealing with and just looking at the regional economy in your area?
ROHR: We're all looking for that silver lining to see when the turn will take place. There's a number of things that are showing up such as the stabilization of unemployment claims and rising lumber prices and we have a number of our customers that are telling us that their earnings are bottoming out or flattening at this point and so we hope that we'll see a bottoming out of the economy but I think 2009 we're going to continue to see falling home prices. We're going to continue to see rising unemployment and so I think the economy is going to be difficult for the rest of the year. The market comes back about six months before the economy does and the economy historically has come back about six months before the unemployment peaks so hopefully we're in that trough and we're not counting on it, but hopefully we're in that trough and start to lift in a little while.
GHARIB: All right. I hope you're right in that outlook. Thank you so much for coming on our program this evening.
ROHR: Susie, thank you very much for having us.
GHARIB: My guest tonight, James Rohr, chairman and CEO of PNC Financial.
