Fitch Upgrades PNC Financial Services Group Inc. IDR to 'A+'; Outlook Stable

Business Wire, Dec 5, 2007

CHICAGO -- Fitch Ratings has upgraded and affirmed various ratings on PNC Financial Services Group Inc. (PNC) and its affiliates.

PNC Financial Services Group Inc.

--Long-term Issuer Default Rating (IDR) to 'A ' from 'A'.

--Preferred stock to 'A' from 'A-'.

The Rating Outlook is Stable.

A full list of rating actions is available at the end of this release.

This rating action is based on PNC's good asset quality, well balanced business mix, improving efficiency, and strong liquidity. PNC has avoided thus far many of the pitfalls in the U.S. credit markets. There is little exposure to subprime mortgage assets, whether through direct lending, asset-backed commercial paper conduit operations, or the investment portfolio. PNC reports no exposure to 'hung' syndicated bridge lending. Loan quality portfolio compares well to that of its peers in the 'A ' rating category.

The business mix is well diversified, with about 60% of revenues coming from fee-producing activities. PNC's fee producing businesses include investment management (through its stake in independent asset manager BlackRock, mutual fund processing, commercial loan servicing, cash management services, and merger and acquisition advisory services for middle market businesses.

PNC has completed an efficiency initiative that has enabled it to generate $400 million in cost saves and revenue synergies. Earnings are similar to those of peers in the higher rating category.

The balance sheet is liquid. PNC's loan/deposit ratio tends to fall in the 75% - 85% range, while most of its large bank counterparts have ratios in excess of 100%. PNC has access to a wide variety of funding sources. Regulatory capital ratios are essentially similar to those of its peers at the higher ratings category. While management has at times reduced capital levels in the wake of an acquisition, its good earnings generation capacity has enabled it to rebuild capital promptly.

PNC is an active and experienced acquirer, with its most significant recent acquisitions consisting of smaller regional or community banks. Recent mergers have been integrated successfully, and pending mergers are relatively small and should be well within PNC's ability to manage. However, given the current level of stress in the banking sector, any large future acquisitions may pose more difficulty and add an extra dimension to PNC's risk profile.

PNC also retains some sensitivity to the business cycle and to deteriorating conditions in the residential mortgage market. Although commercial loss rates have been very low, Fitch expects rates to increase moderately as the credit cycle progresses. Similarly, although PNC's branch-generated home equity portfolio has moderate loan-to-value ratios and good credit quality statistics, loss rates in this portfolio are likely to climb due to the ongoing decline in home prices. Finally, the commercial mortgage-backed securities market has begun to show some signs of stress, and PNC has a moderate amount of exposure in this market through its securitization and servicing activities. That said, Fitch expects any negative trends in these three areas to be moderate and consistent for a bank at this higher rating category.

Fitch has upgraded PNC's affiliates' ratings as follows:

PNC Funding Corp

--Long-term IDR to `A ' from 'A';

--Long-term senior unsecured to `A ' from 'A';

--Long-term subordinated to `A' from 'A-'.

PNC Bank N.A.

--Long-term deposits to `AA-' from 'A ';

--Long-term IDR to `A ' from 'A';

--Long-term senior unsecured to `A ' from 'A';

--Long-term subordinated to `A' from 'A-';

--Short-term deposits to `F1 ' from 'F1'.

PNC Bank Delaware

--Long-term deposits to `AA-' from 'A ';

--Long-term IDR to `A ' from 'A';

--Short-term deposits to `F1 ' from'F1'.

Mercantile Bankshares Corporation

--Long-term subordinated to `A' from 'A-';

Mercantile-Safe Deposit & Trust Company

--Long-term deposits to `AA-' from 'A '.

PNC Financial Corp.

--Long-term subordinated to `A' from 'A-'.

Riggs National Corporation

--Long-term subordinated to `A' from 'A-'.

PNC Capital Trust C, D

--Trust preferred to `A' from 'A-'.

PNC Preferred Funding Trust I - II

--Hybrid capital instruments to `A' from 'A-'.

The Rating Outlook on all the ratings is Stable.

Additionally, Fitch has affirmed the following ratings of PNC Financial Services Group Inc. and its subsidiaries:

PNC Financial Services Group Inc.

--Short-term IDR at 'F1';

--Individual at `B';

--Support at '5';

--Support Floor at `NF'.

PNC Bank N.A.

--Short-term IDR at 'F1';

--Short-term Debt at 'F1';

--Individual at `B';

--Support at '4';

--Support Floor at `B'.

PNC Bank Delaware

--Short-term IDR at 'F1';

--Individual at `B'

--Support at '4';

--Support Floor at `B'.

PNC Funding Corp

--Short-term IDR at `F1';

--Short-term Debt at 'F1';

--Individual at `B'

--Support at '5';

--Support Floor at `NF'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.