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PNC CEO unconvinced by fears of economic recession

PNC Financial Services Group Inc. Chairman, President and CEO William Demchak is not convinced a slump is around the corner for the U.S. economy.

"Everyone is talking about a slightly weaker economy, but we don't see anything today that says that's true," Demchak said during a Jan. 16 call to discuss fourth-quarter 2018 earnings.

Despite market volatility, the potential for a yield curve inversion and political and trade tensions, Pittsburgh-based PNC does not expect a recession to emerge in the near future. Demchak pointed to the high level of consumer confidence, which supports consumer spending, the economic activity that accounts for more than 65% of domestic GDP. PNC's corporate clients remain largely bullish, he added.

Demchak admitted that his outlook could change drastically if the government shutdown persists for a longer period or if trade disagreements with China are not resolved. PNC has built a specific reserve against the effects of tariffs, but the bank is primarily concerned with domestic activity, he said.

"If the worse case happens, we won't have any concentrated impact as it relates to industries or businesses. We will simply be impacted as a function of the impact you'd expect from a slower economy broadly defined," he said.

CFO Robert Reilly added that PNC expects continued steady growth in GDP through 2019, and the company now anticipates just one interest rate increase of 25 basis points from the Federal Reserve in September. Based on those assumptions, PNC is predicting its loan growth to be in the range of 3% to 4%, its revenue growth in the upper end of the low single-digit range and expense growth in the lower end of the low single-digit range, Reilly said.

Looking at the first quarter of 2019 compared to fourth-quarter 2018 results, Reilly said loans and total net interest income will be stable, but PNC expects fee income to be down low single digits. Other noninterest income should come in between $275 million and $325 million, and expenses will remain stable, he said.