PNC Bank 2010 Annual Report Download - page 22
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Please find page 22 of the 2010 PNC Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.and other counterparties to meet obligations to us. Financial
market volatility also can have some of the following adverse
effects on PNC and our business and financial performance:
• It can affect the value or liquidity of our on-balance
sheet and off-balance sheet financial instruments.
• It can affect the value of servicing rights, including
those we carry at fair value.
• It can affect our ability to access capital markets to
raise funds necessary to support our businesses and
maintain our overall liquidity position. Inability to
access capital markets as needed, or at cost effective
rates, could adversely affect our liquidity and results
of operations.
• It can affect the value of the assets that we manage or
otherwise administer for others or the assets for which
we provide processing and information services.
Although we are not directly impacted by changes in
the value of such assets, decreases in the value of those
assets would affect related fee income and could result
in decreased demand for our services.
• It can affect the required funding of our pension
obligations to the extent that the value of the assets
supporting those obligations drops below minimum
levels.
• In general, it can impact the nature, profitability or
risk profile of the financial transactions in which we
engage.
Volatility in the markets for real estate and other assets
commonly securing financial products has been and is likely
to continue to be a significant contributor to overall volatility
in financial markets.
Our business and financial performance is impacted
significantly by market interest rates and movements in
those rates. The monetary, tax and other policies of
governmental agencies, including the Federal Reserve,
have a significant impact on interest rates and overall
financial market performance over which we have no
control and which we may not be able to predict
adequately.
As a result of the high percentage of our assets and liabilities
that are in the form of interest-bearing or interest-related
instruments, changes in interest rates, in the shape of the yield
curve or in spreads between different market interest rates can
have a material effect on our business, our profitability and the
value of our financial assets and liabilities. For example:
• Changes in interest rates or interest rate spreads can
affect the difference between the interest that we earn
on assets and the interest that we pay on liabilities,
which impacts our overall net interest income and
profitability.
• Such changes can affect the ability of borrowers to
meet obligations under variable or adjustable rate
loans and other debt instruments, and can, in turn,
affect our loss rates on those assets.
• Such changes may decrease the demand for interest-
rate based products and services, including loans and
deposit accounts.
• Such changes can also affect our ability to hedge
various forms of market and interest rate risk and
may decrease the profitability or increase the risk
associated with such hedges.
• Movements in interest rates also affect mortgage
prepayment speeds and could result in impairments
of mortgage servicing assets or otherwise affect the
profitability of such assets.
The monetary, tax and other policies of the government and its
agencies, including the Federal Reserve, have a significant
impact on interest rates and overall financial market
performance. These governmental policies can thus affect the
activities and results of operations of banking companies such
as PNC. An important function of the Federal Reserve is to
regulate the national supply of bank credit and certain interest
rates. The actions of the Federal Reserve influence the rates of
interest that we charge on loans and that we pay on
borrowings and interest-bearing deposits and can also affect
the value of our on-balance sheet and off-balance sheet
financial instruments. Both due to the impact on rates and by
controlling access to direct funding from the Federal Reserve
Banks, the Federal Reserve’s policies also influence, to a
significant extent, our cost of funding. We cannot predict the
nature or timing of future changes in monetary, tax and other
policies or the effect that they may have on our activities and
financial results.
PNC faces increased risk arising out of its mortgage
lending and servicing businesses.
Numerous federal and state governmental, legislative and
regulatory authorities are investigating practices in the
mortgage lending and servicing industries. PNC has received
inquiries from governmental, legislative and regulatory
authorities on this topic and is cooperating with these
inquiries. These inquiries could lead to administrative, civil or
criminal proceedings, possibly resulting in remedies including
fines, penalties, restitution, or alterations in our business
practices.
In addition to governmental or regulatory investigations, PNC,
like other companies with residential mortgage origination and
servicing operations, faces the risk of class actions, other
litigation and claims from the owners of, investors in or
purchasers of mortgages originated or serviced by PNC (or
securities backed by such mortgages); homeowners involved
in foreclosure proceedings; downstream purchasers of homes
sold after foreclosure; title insurers; and other potential
claimants. At this time PNC cannot predict the ultimate
overall cost to or effect upon PNC from governmental,
legislative or regulatory actions and private litigation or
claims arising out of residential mortgage lending and
servicing practices, although such actions, litigation and
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