PNC Bank 2015 Annual Report Download - page 34

ITEM 1A – RISK FACTORS
We are subject to a number of risks potentially impacting our
business, financial condition, results of operations and cash
flows. As a financial services organization, certain elements of
risk are inherent in our transactions and operations and are
present in the business decisions we make. Thus, we
encounter risk as part of the normal course of our business,
and we design risk management processes to help manage
these risks.
Our success is dependent on our ability to identify, understand
and manage the risks presented by our business activities so
that we can appropriately balance revenue generation and
profitability. These risks include, but are not limited to, credit
risk, market risk, liquidity risk, operational risk, model risk,
technology, compliance and legal risk, and strategic and
reputation risk. We discuss our principal risk management
processes and, in appropriate places, related historical
performance in the Risk Management section included in
Item 7 of this Report.
The following are the key risk factors that affect us. Any one
or more of these risk factors could have a material adverse
impact on our business, financial condition, results of
operations or cash flows, in addition to presenting other
possible adverse consequences, including those described
below. These risk factors and other risks are also discussed
further in other sections of this Report.
Difficult economic conditions or volatility in the financial
markets would likely have an adverse effect on our
business, financial position and results of operations.
As a financial services company, PNC’s business and overall
financial performance are vulnerable to the impact of poor or
weak economic conditions, particularly in the United States
but also to some extent in the global economy. Recessionary
conditions, particularly if severe such as was experienced
starting in late 2007 and ending in 2009, are likely to have a
negative financial impact across the financial services
industry, including on PNC. Recessionary economic
conditions can lead to turmoil and volatility in financial
markets, which can increase the adverse impact on financial
institutions such as PNC, with the impact increased to the
extent the conditions are more severe. A return to recessionary
economic conditions in the United States would likely
adversely affect PNC, its business and financial performance,
with the impact potentially as or more detrimental than that of
the last recession.
The economic recovery from the 2008-2009 recession
continued in 2015, but at a slower pace than for recoveries
from prior recessions. Although unemployment rates have
dropped significantly from the highest levels during the
recession, wage growth has been muted. Consumer and
business confidence is improving but remains in the cautious
zone.
The beginning of 2016 has seen significant market volatility
driven in part by concerns related to, among other things, the
Chinese economy and the impact of low commodity prices,
including oil and gas. The continued impact of these issues,
including related market volatility, could adversely affect the
U.S. or global economies, with direct or indirect impacts on
PNC and its business. Results could include drops in
consumer and business confidence, credit deterioration,
diminished capital markets activity, delays in Federal Reserve
increases in interest rates, and reduced exports related to
further strengthening of the U.S. dollar.
Over the last several years, there have been several instances
where there has been uncertainty regarding the ability of
Congress and the President collectively to reach agreement on
federal budgetary, taxing and spending matters. A
continuation of divisions within government on these subjects,
which could be exacerbated as a result of the upcoming
presidential and congressional elections, could lead to
increased concern on these topics, which could affect business
activity and consumer and business confidence. A period of
failure to reach agreement on these matters, particularly if
accompanied by an actual or threatened government shutdown
or default, would likely have at least a short term adverse
impact on the U.S. economy.
The global recession and disruption of the financial markets in
2008-2009 led to concerns over the solvency of certain
European countries, affecting these countries’ capital markets
access and in some cases sovereign credit ratings, as well as
market perception of financial institutions that have significant
direct or indirect exposure to these countries. These concerns
continue even as the global economy is recovering and some
previously stressed European economies have experienced at
least partial recoveries from their lowpoint during the
recession. If measures to address sovereign debt and financial
sector problems in Europe are inadequate, they may delay or
weaken economic recovery, or result in the exit of one or
more member states from the Eurozone or more severe
economic and financial conditions. If realized, these risk
scenarios could contribute to severe financial market stress or
a global recession, likely affecting the economy and capital
markets in the United States as well.
Other Risk Factors, presented below, address specific ways in
which we may be adversely impacted by economic conditions.
Our business and financial results are subject to risks
associated with the creditworthiness of our customers and
counterparties.
Credit risk is inherent in the financial services business and
results from, among other things, extending credit to
customers, purchasing securities, and entering into financial
derivative transactions and certain guarantee contracts. Credit
risk is one of our most significant risks, particularly given the
high percentage of our assets represented directly or indirectly
16 The PNC Financial Services Group, Inc. – Form 10-K