Not willing to subscribe to the common 2008 theory that just because a bank is acquiring other banks, it's somehow able to shirk the financial industry problems-- or that a big bank is safer. Things not to like: They opened 20 new branches in 2007-- not a sign that mgt forsaw any of the obvious warning signs. Heavy in acquisitions: this has proved folly for banks, ESPECIALLY banks that made acquisitions before 2008 when they were expensive. Equity = $14 bn Now let's see what's so exciting on PNC's balance sheet... Assets = $140 bn (roughly) This means if PNC's assets suffer a 10% mark-down, for any reason, PNC's book value goes to zero. Not a huge amount of leeway in these troubled times. Loans = $68 bn $6bn in loans to customers in RE, rental, leasing, and construction industries! Don't see why this won't eventually be worth half what it says on the balance sheet. Borrowers in these industries are going bankrupt by the week. $7bn in loans to commercial retail. Hmmm, Apple and Best Buy go down every day, even tho they are both gaining market share. Does this sound like an environment where this line item is still worth 100% of its bal sheet value? $1 bn to commercial financial services borrowers. Ok, that's small, but how much are those loans worth? $6 bn in RE projects. Not sure, but this might mean pure RE ownership. Gotta wonder where this RE is, hopefully farmland bc developer land (for houses or condos) hardly seems worth anything at this point, unless your outlook is 20 years from now. $14 bn in home equity loans. $1.5 bn in auto loans. $3.5 bn in commercial lease financing. Aren't small businesses supposedly struggling? Not exactly a booming market area. $21 bn in RMBS. Aren't these the type of securities on page 1 of the paper every day? Sorry, don't buy into the fact that only subprime neighborhoods are default candidates; there's plenty of "rich" people whose annual spending matches their income. If Wall Street bankers and Main street bankers are being fired, this doesn't portend well for high-end neighborhood RE prices. Just because Johnny rich-guy on the hill refuses to accept offers for less than what he paid for his McMansion in 2007, doesn't mean his house is worth the asking price. In the next 18 months, the RE sector to get fleeced will be high-end RE. So even if you avoided the subprime mess, it's not over-- especially if middle and upper class owes more on their house than the house is worth ("under water"). $5 bn in CMBS. Not hit like the RMBS mkt, but isn't that why commercial RE stocks have gotten annihilated even tho their performance in 2008 has been dandy? See CSGP and LOOP for reference. Worst of all, $31 bn of PNC's balance sheet is listed as "Securities available for sale". This means that this portfolio is nice an fresh, as in loans made at the 2004-2007 peak. Frankly, PNC will be lucky to escape the credit crises alive, much less trade for a premium to a shaky book value of $14 bn. (mkt cap is $22bn). 1.5 x book? Ludicrous. Roll-up stocks, Wall St just loves'm. Ludicrous.
$62.35 (11/12/08)
