PNC CEO on making another acquisition: ‘I think we have to’

Interview 31 January

PNC CEO on making another acquisition: ‘I think we have to’

When asked if he foresaw PNC Financial Services Group [NYSE:PNC] doing another acquisition, CEO Bill Demchak replied, “I think we have to.”

Speaking in a keynote interview on stage yesterday at Bank Director’s Acquire or Be Acquired conference, Demchak said that the top three banks by deposits – JP Morgan Chase [NYSE:JPM], Bank of America [NYSE:BAC] and Wells Fargo [NYSE:WFC] – are the only ones that organically grew their share of retail deposits in the last decade. They’re ubiquitous, and they have great products, he said. “Left to their own devices, they’ll consolidate the country.”

The only other banks that have grown retail deposit share are those that have executed M&A, according to Demchak. PNC itself rapidly expanded its presence in the US with its USD 11.6bn acquisition of the US arm of Spanish lender BBVA [BME:BBVA], giving it a presence in California, Texas, Colorado, New Mexico and Arizona as well as expanding its footprint in Alabama and Florida.

It wants to be a coast-to-coast bank, Demchak said. Between BBVA’s addition and markets it opened on its own, the Pittsburgh-based regional bank went from operating in around 12 of the largest metropolitan statistical areas a handful of years ago to now being in the top 30, he added.

At around USD 444bn in deposits, PNC ranks sixth in the country by deposit size. While the next largest bank, US Bancorp [NYSE:USB], has USD 484bn in deposits, it then jumps up to Citi’s [NYSE:C] USD 1.335trn in deposits. JPMorgan, the largest bank in the country, has USD 2.502trn in deposits as of 30 September 2022.

PNC’s BBVA transaction made it through just before “a sea change in Washington on large-scale consolidation,” according to Demchak, who also noted that it did so without any negative letters to regulators during open comment periods. He cautioned that regulators need to change “the way they look at competition and real risk in the banking system and allow us to grow larger through acquisition.”

When asked if PNC would be allowed to execute another acquisition, the CEO replied, “I don’t know.” But he said he believes there need to be 10 banks the size of PNC or bigger to get competition back into the system.

Though large bank mergers have not been ubiquitous recently, those that have been announced are taking a while to be cleared by regulators. The PNC-BBVA deal was announced in November 2020 and closed in May 2021.

Bank of Montreal’s [TSE:BMO] planned USD 16.3bn acquisition of Bank of the West from BNP Paribas [EPA:BNP] was first announced in December 2021. BNP Paribas said earlier this month it received all the necessary regulatory approvals to complete the transaction. The deal is expected to close on 1 February.

TD Bank’s [TSE:TD] planned USD 13.7bn purchase of First Horizon National [NYSE:FHN], announced in February 2022, has been delayed and is now expected to close in the first fiscal half of the year. Under the terms of that deal, TD had until 27 November 2022 to close the USD 25 per share transaction before a USD 0.65 per share annualized ticking fee kicked in.

To be sure, bank M&A and activity in the broader financial services sector slowed substantially in 2022, as reported.

One sector advisor said on the sidelines of the conference that he expects more deal activity as 2023 progresses, though without any large bank mergers in the near future. Given the state of the macroeconomy in combination with the BBVA purchase, that advisor speculated that PNC won’t make another acquisition before the 2024 US presidential election.

PNC did not respond to a request for additional comment.

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