James E. Rohr is chairman and CEO of The PNC Financial Services Group, one of the largest diversified financial services companies in the U.S. Rohr joined PNC in 1972 and held marketing and management positions in several corporate banking areas, including lending, treasury management services and merchant banking, before he was named CEO in May 2000 and chairman in May 2001.
In this Q-and-A, Rohr discusses the economy, Dodd-Frank and his experience leading his firm through a major acquisition and the recent financial crisis.
Which areas of the economy represent the greatest opportunities for PNC to help power the economic recovery?
The economic recovery is picking up steam. Most sectors have seen steady improvements. Two broad measures of economic activity, the ISM Manufacturing and the ISM Non-Manufacturing indices, increased strongly in January, with the manufacturing index hitting a post-recession high and the non-manufacturing index at a five-year high. This seems to be an indication that growth is spreading to the service sector.
With significant capital to lend, PNC stands ready to support this ongoing recovery as manufacturers seek to invest in new technology and service businesses seek to expand.
What did the Dodd-Frank Act get right? How could it have been improved?
In large part, the Dodd-Frank Act provides a framework for regulators to work with, and it will be in their rule-making that the Act proves itself to be beneficial or not. The obvious exception is the [U.S. Sen. Richard] Durbin amendment limiting debit card interchange fees.
From our perspective, the rule provides the Federal Reserve with too little flexibility in determining which costs the bank can pass along to merchants. For instance, we cannot be paid for the risks we incur on debit card interchange. Because of this, the Fed’s current interchange fee proposal is dramatically inconsistent with the cost of providing the service. Ultimately, banks may be forced to pass along those costs to the consumer.
From a management perspective, what were some of the keys to success for your acquisition and integration of National City?
The employees on both sides of the transaction had to make the integration work. From the very beginning, we recognized that a smaller bank could not impose its practices on a larger bank such as National City. We needed buy-in from all 50,000 employees, and we received it. Through millions of hours of training on PNC’s policies and procedures, our legacy National City employees became increasingly enthusiastic about the conversion. That helped us complete the integration months ahead of schedule, with better than 90% checking-relationship retention and 50% more savings than we had originally anticipated.
We continue to see benefits. Our former National City markets in the Midwest have contributed impressively to PNC’s growth, but there is more to gain. To give you just one example, if we can sell noncredit products to current credit-only customers in the Midwest at the same rate we do in PNC’s legacy Eastern markets, we will increase revenues by $300 million annually.
From a leadership perspective, what are some of the lessons you learned from the financial crisis?
When I was a young calling officer right after joining PNC in the ’70s, an experienced banker told me that you should love everything you put on your balance sheet, because when a downturn comes, you are going to meet it again.
The recent crisis demonstrated just how right my old colleague was about managing your risks on the front end. It was PNC’s commitment to a moderate risk profile in much of the last decade that positioned us as a winner through this downturn. It is a lesson we all needed to learn again, though I wish it had not been as harsh as it was for so many.