The PNC Financial Services Group, Inc. (NYSE:PNC) Q4 2022 Earnings Call Transcript

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Bill Demchak: Look, there’s obviously — we could, in the near term, increase earnings by being less competitive with deposits and let deposits run off. We have the liquidity to do that. We could increase our loan-to-deposit ratio. The challenge with that is, in the course of doing that you’re damaging your long-term franchise. So, if you’re losing deposits that are not core relationship deposits that maybe that makes sense. But if you’re losing customers in the process of that runoff, that’s a mistake. And that’s the — that’s the logic we use in figuring out how we price deposits and how we grow or maintain deposits.

Ebrahim Poonawala: That’s fair. And if I may, one last question, Bill. In terms of just the macro uncertainty, how do you assess like the difference between credit normalization and whether or not we’re getting into some version of a recession? Like — can you conclusively think about that over the next few months or we’re not going to know that until we are well into the depth of a downturn a few quarters from now?

Bill Demchak: We’ve given you our best forecast. Yes. I mean, look, there’s a lot of unknowns here. Technically, we could see ourselves heading into a full employment “recession” because you’ll have stale GDP for a couple of quarters, but unemployment not ticking up to high levels. And I don’t even know how to think about that environment in terms of what charge-offs might be. I mean that’s probably really low charge-off environment.

Rob Reilly: Well, it’s just to your point in terms of what I said at the beginning, it’s really difficult for the full year, particularly this year. We’ve put together what we think we can do.

Operator: Our next question is from the line of Matt O’Conor with Deutsche Bank. Please go ahead.

Matt O’Connor: We could just circle back on some of the lumpy costs. I guess, just in aggregate, like how much were the impairment? And then I think there was also — you had called out some lumpiness from the long-term intense plan, which I think impacts both fees and comp. If you could just kind of flesh out the aggregate lumpy costs, that would be helpful.

Rob Reilly: Yes. Without — we don’t have specific numbers. You can see them as they break down in terms of our impairments within the occupancy line and the equipment line. The long term it was just the effect of a benefit in the third quarter and then it swung against us in the fourth quarter. So not big numbers, but just the delta between the two quarters drove the increase.

Matt O’Connor: Okay. And then separately, I mean, I heard you earlier kind of reiterate the 8.5% to 9% CET1 target over time, and just any thoughts on the regional banks kind of just below your size? It seems like they’re all kind of building capital close to 10%. And I don’t know if it pressure behind the themes from rating agencies or regulators or just conservatism for where we are in the cycle. But any thoughts on the Company your size being able to run 9% when the ones — obviously, the banks that are bigger are running higher, but it’s just been interesting to note that the ones below you, kind of $200 billion in assets, all seem to be building closer to 10%?

Rob Reilly: Do you want to answer? Well, the only thing — the only — the only thoughts that I have just reacting is the guidelines are typically drawn for all banks in terms of the stress capital buffer. So how they stress — you got to look at that. And then, it’s the relative capital level to the stress levels as opposed to the absolute levels. But that’s just my reaction.

Matt O’Connor: Okay. But I guess the point is like you feel comfortable with whatever kind of behind-the-scene stuff that’s going on with the rating agencies, regulators, the 9% and maybe drifting down a little bit over time, but at 9% you feel hopeful with in the current environment?

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