Deutsche Bank Upgrades PNC Financial Services (PNC) to Hold

July 18, 2008 8:48 AM EDT

Deutsche Bank upgrades PNC Financial Services (NYSE: PNC) from Sell to Hold and increases their price target from $53 to $60, due to better than expected Q2 results.

The company reported better than expected results "given a stronger margin (up 38 bp to 3.47%), favorable spread revenues, growing fees (helped by higher core service charges), and positive operating leverage." In addition, the company's management guided revenue growth higher in an amount that exceeds expectations for higher loan loss expenses.

In addition, the firm said, "Moreover, while asset quality was worse (NPAs up 1/5th), loan losses were not too bad (up 5 bp to 62 bp) and management's expectation is for NPAs to increase by only about 15% in 3Q08. Certain areas standout, including home equity loss rates (53 bp, well below many others) and reserves to loans also improved somewhat (to 1.35%). While management increased its expectations for provisions in 2008 ($750 mil.), most of this was already in our estimates and it may be offset by greater spread revenue growth."

What keeps Deutsche Bank from a Buy rating include: "flattish book value growth (given higher unrealized securities losses), certain one-time revenue items which we removed from core (above trend trading, sale of CMBS, gain on Blackrock compensation plan), and commercial real estate problems (included in the guidance)".

The PNC Financial Services Group, Inc. operates as a diversified financial services company in the United States.

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