Their bread and butter is in retail banking, which accounts for just over 50% of their revenue. Through their retail banking, PNC provides deposit and cash management services to their 2.9 million customer base. Their corporate and institutional banking division accounts for 25% of their revenue and is the branch within PNC which is responsible for not participating in the subprime markets. The CI banking unit is responsible for their lending and capital market products. PNC global and investment servicing is responsible for approximately 8% of PNC’s revenue, providing business services to global clients. And finally, PNC has a 34% stake in BlackRock Solutions, another business that has conquered the subprime crisis. BlackRock (BLK: 153.55, 0.00 (0.00%)), an asset management subsidiary, accounts for nearly 15% of PNC’s revenue. With BlackRock, PNC has a unique revenue source that most regional banks do not have, which has allowed them to remain financially stable.

Performance Breakdown

If PNC’s diversity and share appreciation does not have one convinced, then take a look at the company’s financial performance thus far in 2008. For the second quarter in 2008, PNC realized a 19% increase in revenue to $505 million from $423 million. The company earned $1.46 a share, 25% higher than analyst expectations of $1.16 a share. In particular, their net interest income, which across all their business lines comprises about 43% of revenue, increased 32% from the second quarter in 2007. Furthermore, the company was able to increase their interest spread 45 basis points to 3.47% and boost their tier 1 ratio 40 basis points to 8.1%.

Looking Forward

So the obvious question is what is next? Does PNC’s financial success make it a viable acquisition target? It certainly is possible that Goldman Sachs (GS: 101.35, 0.00 (0.00%)) would be interested in taking on PNC for the capital security presented in PNC’s depository business. However, with a market cap of $25 billion and a thriving business line two more questions arise. Is Goldman willing or in position to fork over the premium it would take to acquire PNC? In addition, would PNC sell itself with the type of growth opportunities it has positioned itself to take advantage of as the financial system rebuilds itself? No one can really be certain but for now we know that PNC should continue to gain retail customers and new business projects because of their recent performance. The right price can create any deal, but Goldman would probably not consider making an offer without further extensive deterioration of their balance sheets that would create a more dire need for capital security. Regardless, expect PNC to remain financially superior. Their excellent management and diverse revenue stream has created a premier bank built to handle even the most turbulent economic conditions. The company has all the pieces to grow and maintain the success it has seen this year.