PNC Financial Services (NYSE:PNC), the second largest U.S regional bank not only faces stiff competition due to industry consolidation but tough economic times as well.
PNC stock rushed up 19% during the current year. The bank faces a major decision. Let’s review the bank’s past performance and see what would be the implication of PNC Financial selling or not selling its BlackRock, Inc. (NYSE:BLK) stake.
Despite weaker lending, PNC Financial Services (NYSE:PNC) reported good results at the end of the first quarter. During the first quarter of 2013, the bank reported net income of $1 billion, up 40% over the fourth quarter of 2012. This growth was driven by the combination of customer growth and abridged expenses. Net interest margin declined 4 basis points (bps) sequentially to 3.81%, while asset quality improved. Net charge-offs were up 47% quarter-to-quarter, to $456 million, for the first quarter. Growth in the bottom line is also aided by a 26% decline in the provision for credit losses.
Among all business segments, Corporate & Institutional Banking reported a higher net income of $541 million followed by Retail Banking and the Non-Strategic Assets Portfolio with net income of $120 million and $79 million, respectively. PNC Financial increased its dividend to $0.44 per share from $0.40 per share.
BlackRock a reliable source of income
PNC Financial Services (NYSE:PNC) recorded “Other income, including BlackRock” of $176 million up 266% quarter over quarter. PNC Financial has a 21% stake in BlackRock, Inc. (NYSE:BLK), a multinational investment management corporation.
PNC acquired its BlackRock stake in 1995 for about $240 million. PNC Financial is now facing a dilemma whether to sell or hold its BlackRock stake. As of today, the $9.46 billion investment accounts for 25% of the total PNC Financial’s market cap. BlackRock is a profitable business and reliable source of income for PNC Financial. Last year alone, PNC Financial drove 13% of its profit from BlackRock.
BlackRock’s first quarter revenues rose 9% to $2.5 billion beating analyst estimates of $2.43 billion. The increase in revenues was largely due to growth in capital markets and higher performance fees. Profits jumped 10% to $632 million. Total operating expenses were $1.5 billion increased $106 year-over-year, driven by an increase in employee compensation cost and general and administrative expenses.
PNC Financial’s stake in BlackRock, Inc. (NYSE:BLK) is a major source of stable earnings for the bank. BlackRock’s profit is mounting every year, and it is a solid investment for PNC. PNC Financial has already reduced its stake by selling 7.5 million shares for $1.22 billion in 2010.