PNC Bank 2011 Annual Report Download - page 14

E UROPEAN E XPOSURE
As of December 31, 2011, our loans, leases, securities,
derivatives, letters of credit, unfunded contractual
commitments and other direct financial exposure (“exposure”)
with European entities totaled $2.1 billion of which $1.6 billion
or .59% of our total assets represent outstanding balances.
European entities are defined as supranational, sovereign,
financial institutions and non-financial entities within the
countries that comprise the European Union, European Union
candidate countries and other European countries. Of the $2.1
billion in direct financial exposure, $357 million are securities
issued by AAA-rated sovereigns, $625 million represents
cross-border leases in support of national infrastructure and
supported by letters of credit having trigger mechanisms that
require collateral in the form of cash or United States Treasury
securities, and $440 million of unfunded contractual
commitments primarily to United Kingdom local office
commitments for Business Credit corporate customers on a
secured basis. There was no individual country where the
exposure was greater than .75% of total assets.
We also track other European financial exposures where PNC
is appointed as a fronting bank by our clients and we elect to
assume the joint probability of default risk. For PNC to incur a
loss in these types of indirect exposures, the obligor and the
financial counterparty participating bank would need to
default. As of December 31, 2011, PNC had $2.0 billion of
indirect exposure where PNC is the fronting bank.
Foreign exposure underwriting and approvals are centralized.
Country exposures are monitored and reported on a regular
basis. We actively monitor sovereign risk, banking system
health, and market conditions and adjust limits as appropriate.
We rely on information from internal and external sources
including international financial institutions, economists and
analysts, industry trade organizations, rating agencies,
econometric data analytical service providers, and geopolitical
news analysis services.
Among the regions and nations that PNC monitors, we have
identified eight countries for which we are more closely
monitoring their economic and financial situation. The basis
for the increased monitoring includes, but is not limited to,
sovereign debt burden, near term financing risk, political
instability, GDP trends, balance of payments, market
confidence, banking system distress and/or holdings of
stressed sovereign debt. The countries identified are: Greece,
Ireland, Italy, Portugal, Spain (collectively “GIIPS”),
Belgium, France and Turkey. Direct and indirect exposure to
entities in the GIIPS countries totaled $181 million as of
December 31, 2011 of which $118 million is direct exposure
in the form of cross-border leases within Portugal and indirect
exposure primarily composed of $48 million from letters of
credit with strong underlying obligors and $15 million of
unfunded commitments to Spain. Direct and indirect exposure
to entities in Belgium, France, and Turkey totaled $924
million as of December 31, 2011 of which, there is direct
exposure of $75 million in the form of cross-border leases
within Belgium, and $11 million of 90% Overseas Private
Investment Corporation (“OPIC”) guaranteed Turkish loans
and indirect exposure primarily composed of $770 million in
letters of credit with strong underlying obligors in France and
Belgium.
S
UPERVISION A ND R EGULATION
O VERVIEW
PNC is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended (BHC Act) and a
financial holding company under the Gramm-Leach-Bliley
Act (GLB Act).
We are subject to numerous governmental regulations, some
of which are highlighted below. You should also read Note 21
Regulatory Matters in the Notes To Consolidated Financial
Statements in Item 8 of this Report, included here by
reference, for additional information regarding our regulatory
matters. Applicable laws and regulations restrict our
permissible activities and investments and require compliance
with protections for loan, deposit, brokerage, fiduciary,
investment management and other customers, among other
things. They also restrict our ability to repurchase stock or pay
dividends, or to receive dividends from bank subsidiaries, and
impose capital adequacy requirements. The consequences of
noncompliance can include substantial monetary and
nonmonetary sanctions.
In addition, we are subject to comprehensive examination and
supervision by, among other regulatory bodies, the Board of
Governors of the Federal Reserve System (Federal Reserve)
and the Office of the Comptroller of the Currency (OCC),
which results in examination reports and ratings (which are
not publicly available) that can impact the conduct and growth
of our businesses. These examinations consider not only
compliance with applicable laws and regulations, but also
capital levels, asset quality and risk, management ability and
performance, earnings, liquidity, and various other factors.
The results of examination activity by any of our federal bank
regulators potentially can result in the imposition of
significant limitations on our activities and growth. These
regulatory agencies generally have broad discretion to impose
restrictions and limitations on the operations of a regulated
entity where the relevant agency determines, among other
things, that such operations are conducted in an unsafe or
unsound manner, fail to comply with applicable law or are
otherwise inconsistent with the regulations or supervisory
policies of the agency. This supervisory framework could
materially impact the conduct, growth and profitability of our
operations.
We also are subject to regulation by the Securities and
Exchange Commission (SEC) by virtue of our status as a
public company and by the SEC and the Commodity Futures
Trading Commission (CFTC) due to the nature of some of our
businesses. Our banking and securities businesses with
operations outside the United States, including those
conducted by BlackRock, are also subject to regulation by
The PNC Financial Services Group, Inc. – Form 10-K 5