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PNC lowers full-year revenue outlook, details outlook of P2P network

PNC Financial ServicesGroup Inc. lowered its full-year revenue forecast in connection withits expectations for short-term interest rates, management said during the bank'ssecond-quarter earnings call.

The bank reportedsecond-quarter net income attributable to diluted common shares of $914 million,or $1.82 per share, compared to $987 million, or $1.88 per share, a year ago.

Chairman, President and CEO William Demchak said the FederalOpen Market Committee appears to be in a "holding pattern" on furthertargeted Fed fund interest rate increases at the same time long-term interest rateshave rallied following the success of the Brexit Leave campaign and investors' continualsearch for positive yield. Those recent events, along with a strong dollar and positiveyields in the U.S., makes the U.S. rate market "preferable" to others,he said, which will result in more pressure on the bank's net interest income andnet interest margin going forward. Most of the pressure at PNC will be in the securitiesbook as higher-yielding bonds roll off and are replaced with lower-yielding ones.

But he said the bank will continue to grow fee income and iswell-positioned in its expense management efforts, and will resist making changesto its risk profile, stretching on credit or leveraging its balance sheet.

CFO Robert Reillysaid the bank anticipates the U.S. economy will continue growing at a steady pacebut does not believe the FOMC will raise short-term interest rates before December.The bank moderated its full-year 2016 revenue guidance down to "stable,"from its previous projection of modest growth, while keeping its modest loan growthand stable expense outlooks unchanged.

Demchack offered an update on the bank's participation and rolloutof clearXchange, a mobile payments network that it and its large-bank peers havecreated. He said the peer-to-peer payment network is slated to roll out in the thirdquarter and will feature PNC, CapitalOne Financial Corp., U.S.Bancorp, Wells Fargo &Co. and JPMorgan Chase &Co. Bank of America Corp.is also on the platform, according to the clearXchange website. He called the platform"incredibly important" in the long term because it creates "a newpayment rail."

"It will be, when it's fully formed and launched in a formalfashion probably in the first quarter … a real-time, ubiquitous P2P payment platformthat offers alternatives to traditional ACH and debit and credit rails, and implicationsof that — I'll leave to your imagination — but potentially are quite powerful,"he said.

He said one issue with offering a traditional peer payment systemis that the service is currently offered elsewhere for free, but that there are"opportunities" as those systems evolve.

"I know there [are] opportunities, as the use case of thatproducts changes either for larger dollar amounts or for [person to small business]and so on and so forth," he said. "So I do think there's revenue opportunitiesassociated with a pure P2P, but I think the bigger implication is strategic importanceof creating what, in effect, is an entirely new payment rail."