The PNC Financial Services Group, Inc. (NYSE: PNC) is one of a few financial companies that remains unscathed from the ongoing financial crisis. According to its recent 10K, in fiscal 2007, PNC incurred $48M in losses for mortgage loan portfolio repositioning, compared with $143B in annual revenue. The company said only 2% of the company’s asset is tied to subprime mortgages.
It is not easy for an outsider to determine why PNC has such little exposure to the once-highly rewarding subprime and asset-backed securities markets. However, a quick review of PNC’s regulatory filings gives some clue. PNC’s remuneration policy is comprehensive. Risk management and the quality of corporate governance factor in the determination of executive compensation. Since fiscal 2006, executive incentive pay has been tied to not only such financial goals as EPS and ROCE growth, but also non-financial metrics as operating leverage, diversification and risk and governance ratings.
What really sets PNC apart from other financial firms is that the company has been putting serious efforts into meeting this set of long-term nonfinancial goals, instead of changing them as many financial companies did almost as a matter of expediency. PNC appears to remain immune to the current crisis because it has a strong governance culture committing directors and executives to implementation of strong, well-balanced policies.
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