PNC Bank 2002 Annual Report Download - page 54

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52
committed to the goal of establishing PNC as an industry
leader in the areas of governance, corporate conduct, risk
management and regulatory relations, and to meeting all of the
Corporation’s commitments to its regulators. While PNC
believes that substantial progress has been made in this pursuit
to date, it also recognizes that this remains an important
ongoing effort requiring dedication and a commitment of
resources at all levels of the institution.
MONETARY AND OTHER POLICIES
The financial services industry is subject to various monetary
and other policies and regulations of the United States
government and its agencies, which include the FRB, the OCC
and the Federal Deposit Insurance Corporation as well as state
regulators. The Corporation is particularly affected by the
policies of the FRB, which regulates the supply of money and
credit in the United States. The FRB’s policies influence the
rates of interest that PNC charges on loans and pays on
borrowings and interest-bearing deposits and can also affect
the value of on-balance-sheet and off-balance-sheet financial
instruments. Those policies also influence, to a significant
extent, the cost of funding for the Corporation.
COMPETITION
PNC operates in a highly competitive environment, both in
terms of the products and services offered and the geographic
markets in which PNC conducts business. This environment
could become even more competitive in the future, as a result
of legislative, regulatory and technological changes and
continued consolidation in the financial services industry. The
Corporation competes with local, regional and national banks,
thrifts, credit unions and non-bank financial institutions, such
as investment banking firms, investment advisory firms,
brokerage firms, investment companies, venture capital firms,
mutual fund complexes and insurance companies, as well as
other entities that offer financial and processing services, and
through alternative delivery channels such as the World Wide
Web. Technological advances and legislation, among other
changes, have lowered barriers to entry, have made it possible
for non-bank institutions to offer products and services that
traditionally have been provided by banks, and have increased
the level of competition faced by the Corporation. Many of
the Corporation’s competitors benefit from fewer regulatory
constraints and lower cost structures, allowing for more
competitive pricing of products and services. As a result, PNC
could lose business to competitors or be forced to price its
products and services on less advantageous terms to retain
customers.
DISINTERMEDIATION
Disintermediation is the process of eliminating the role of the
intermediary in completing a transaction. For the financial
services industry, this means eliminating or significantly
reducing the role of banks and other depository institutions in
completing transactions that have traditionally involved banks.
Disintermediation could result in, among other things, the loss
of customer deposits and decreases in transactions that
generate fee income.
ASSET MANAGEMENT PERFORMANCE
Asset management revenue is primarily based on a percentage
of the value of assets under management and performance
fees expressed as a percentage of the returns realized on assets
under management. A decline in the value of debt and equity
instruments, among other things, could cause asset
management revenue to decline.
Investment performance is an important factor for the
level of assets under management. Poor investment
performance could impair revenue and growth as existing
clients might withdraw funds in favor of better performing
products. Also, performance fees could be lower or
nonexistent. Additionally, the ability to attract funds from
existing and new clients might diminish.
FUND SERVICING
Fund servicing fees are primarily derived from the market
value of the assets and the number of shareholder accounts
administered by the Corporation for its clients. A rise in
interest rates or a sustained weakness or further weakening or
volatility in the debt and equity markets could influence an
investor’s decision to invest or maintain an investment in a
mutual fund or other pooled investment product. As a result,
fluctuations may occur in the level or value of assets that the
Corporation has under administration. A significant investor
migration from mutual fund and other pooled investments
could have a negative impact on the Corporation’s revenues
by reducing the assets and the number of shareholder
accounts it administers. The fund servicing business is also
highly competitive. There has been and continues to be
merger, acquisition and consolidation activity in the financial
services industry. In the future, mergers or consolidations of
financial institutions or other financial intermediaries could
impact the number of existing or potential fund servicing
clients.