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I recently wrote about the big four banks in the USA, and have watched the short-term interest on these stocks over the volatility of recent weeks. However, if I wanted to look for a bank with significant upside potential, where would I look? Having looked at the top 50 ranked banks in the USA, I noticed that if I put my money where my mouth is, then PNC Financial Services Group (NYSE:PNC) is that bank.

At the time of writing, PNC is trading at $47.70, up $0.86 (1.84%), and is trading at a discount of $16.79 (26%) to its 52 week high of $64.49 per share. Seeking Alpha lists its key financial ratios as EPS of 6.81, PE of 6.90, Dividend Rate of 1.40, and a market capitalization of 24.65 billion. Why do I see significant upside in PNC? Because I’m looking through a different lens from most USA investors, comparing banking here in the United States to banking in Australia and the United Kingdom. And in PNC’s case, I like what I see starting at the top with the Chairman and CEO, James Rohr in his March 2011 letter to shareholders:

Two years after the greatest financial crisis since the Great Depression, PNC has emerged as one of the largest, strongest banks in America. We are poised to compete successfully in a consolidating industry despite economic headwinds and significant regulatory change. We see tremendous momentum for growth in 2011 with the goal of creating even greater value for our shareholders.

In structuring the company for success, PNC has positioned itself to grow value across a range of key areas as follows:

Leadership – The CEO writes that to be successful in the future, it will not be enough to recognize or respond to change; the leaders will be those companies that anticipate and embrace change and respond with innovative products and services. At the strategic level, the leadership of PNC is setting the example for its staff to follow, individually and collectively, and with a fresh perspective of the Global Financial Crisis [GFC] still in its mind, the company is looking forward to be a market leader – and to develop its products and services to position it for success.

Customer service – PNC is making big inroads in this area, especially retail banking. It acknowledges that employees drive its success, and that they have the potential to be the biggest advantage for its company. If you visit a PNC Branch, you can see outstanding customer service in action every day, and you have the ability to speak directly with the Branch Manager, something of a rarity in other banks these days. It’s pretty evident that this is reflected in the staff's perspective, as PNC won the ‘2010 Gallup Great Workplace Award’, and is a nine time winner of Working Mother magazine’s ‘100 Best Companies’ award.

Product Innovation – Having dealt with banking institutions and being an account holder in Australia and England, I can honestly state that the wider banking community in the USA is behind the times in comparison to these two countries when it comes to online banking and product innovation. Checks are outdated and prone to loss and fraud; greater security measures are now available with electronic banking and online processing of retail and commercial transactions. PNC gets this, and is starting to deliver innovative online banking solutions. Wherever banks can increase flexibility of access for account holders, it has the potential to lower its overhead in the management of accounts, which contributes to the overall bottom line.

Acquisition and Growth – PNC continues to expand its banking network, and broadening its income streams beyond its expanding branch network across 15 states servicing 5 million customers and businesses. In addition to its assets under management, PNC also holds a 25% stake in BlackRock (NYSE:BLK). PNC has a sound plan to continue to acquire other banks, assets and customers when opportunities present, and when it is financially sound to do. I believe the company is conservative in this regard, and it is with this approach that it will be able to continue growth without overleveraging, and while maintaining its mandated capital requirements.

Bottom Line FinancialsIn its 2011 Q2 earnings, PNC’s CEO announced that the company had earned $912 million in net income, or $1.67 per diluted share, and that its first half profits were up 18% over the same period in 2010. Commercial loan growth has increased by $2 billion, and quarterly dividends were up 250%. The CEO and CFO have not outlined any expected or known variables to its bottom line forecasts, but in remaining conservative it expects net income to remain flat, but net expenses to remain likewise.

In summing up, current market volatility has dragged down the share price in recent months, however the longer term upside remains prosperous, and it offers long term position traders an excellent entry price at a significant discount. As the CEO states:

PNC’s business model is designed to produce diverse revenue streams through our commitment to a moderate risk philosophy, continuous improvement and a well-positioned balance sheet.

I for one am inclined to agree, and see PNC as a definite long term position for investment portfolios. It has demonstrated potential to grow in time to be a financial entity worthy of challenging the big four banks: Bank of America, JPMorgan, Citigroup and Wells Fargo.

This advice is general in nature only and you should seek independent financial advisor prior to making any individual investments.

Source: PNC Financial Is A Banking Middleweight With Significant Upside Potential