Fourth-quarter earnings for Pittsburgh-based PNC Financial Services Group fell more than 40 percent, according to the bank's quarterly report. Net profits dropped to $451 million, or 85 cents a share, from $798 million ($1.50/share) one year ago.
"PNC had a solid year of accomplishments in a challenging regulatory and economic environment," said PNC Chairman and CEO James E. Rohr.
Overall profits for 2011 came in under $3 billion, a decline from last year's $3.01 billion.
Officials said one reason for the decline was an increase in expenses, including funds allocated to meet unspecified future costs related to mortgage foreclosures, "primarily as a result of ongoing governmental matters."
On a conference call with investors and market analysts Wednesday, Rohr would not say whether those expenses stemmed from so-called "robo-signing" litigation, or from contacts with the newly formed Consumer Financial Protection Bureau (CFPB). "We're restricted in talking about our relationship with our regulators," Rohr said. But he indicated the bank set aside the money after meeting with "additional regulators."
"We believed that there was something that was going to come from the mortgage arena on the servicing side, but we never could figure out how to estimate it," Rohr said. "But the recent conversations gave us some additional information, which we accrued for in the quarter."
More fees for customers
PNC anticipates growth in the retail banking sector in 2012 as a result of its acquisition of Royal Bank of Canada's (RBC) operations in the southeastern United States. Rohr said the "low-hanging fruit" of PNC's growing customer base presents new revenue opportunities, adding that "we have to re-price our relationship with consumers" in order to make up profits lost to low interest rates.
"To be honest about it, if interest rates were at five percent and we were making a lot of money on our deposits with the consumer, it wouldn't be quite the issue that it is," Rohr said. "But clearly with interest rates being so low, obviously you have to use different types of pricing — including different types of fees — in order to make the relationship more profitable."
Better times ahead
Overall, PNC officials insist, the outlook for 2012 is good. The bank may soon resume buying up foreign debt as Europe stabilizes, and predicts strong loan growth amid an improving U.S. economy. Apart from a still-weak housing sector, Rohr said, all the indicators are good.
"Residential housing is still massively challenged, and there's going to be some more challenges for another year or two in that space," Rohr said. "But the rest of the country is doing, you know, better. And when you look at the earnings reports that have come out — retail sales, unemployment coming down — the rest of the country is doing better."