PNC Aims to Emerge From the Next Financial Crisis Much Larger

(Bloomberg) -- The last financial crisis reordered the U.S. banking hierarchy, forcing weakened firms to sell themselves to rivals that remain dominant to this day. PNC Financial Services Group Inc. is getting ready in case it happens again.

PNC’s decision to cash out roughly $14 billion in BlackRock Inc. shares will position the Pittsburgh-based bank to be a much more aggressive buyer than it was in 2008, when it snapped up a regional rival. The cash PNC is raising exceeds the market value of almost every bank in the country that’s smaller than it is. It will wield more money than the distressed prices Bear Stearns Cos. and Lehman Brothers Holdings Inc.’s brokerage fetched in 2008.

Read more: Citizens, Comerica, Regions among banks seen as PNC targets

Whether the coronavirus pandemic will inflict enough carnage to create such unusual situations is a big unknown. But PNC Chief Executive Officer William Demchak’s announcement this week that he’s preparing for “opportunities that history has shown can arise in disrupted markets” has captured the attention of the industry -- stirring talk that not only is his bank on the hunt but that others should be getting ready too.

“This move by PNC is probably sending investment bankers into a tizzy preparing deal pitches every which way,” Wells Fargo & Co. analyst Mike Mayo said. “PNC has a war chest.”

The bank hasn’t elaborated on its plans beyond statements on the sale of BlackRock shares. There’s no deal currently in the works, according to a person with knowledge of the situation.

The last crisis cemented two tiers atop the country’s banking industry: A group of international titans led by JPMorgan Chase & Co. -- which pulled further ahead by paying just a couple billion dollars to buy Bear Stearns -- and a cluster of large regional lenders such as PNC.

In between was Wells Fargo, a large regional bank that snapped up troubled rival Wachovia Corp. to more than double in size, vault to the top spot in U.S. deposits and enter 15 new states. In the decade that followed, takeovers were relatively rare and too small to shake up the status quo. Then came last year’s $28 billion combination of BB&T Corp. and SunTrust Banks Inc. to form Truist Financial Corp.

That deal was widely seen within the industry as the start of a new wave of mergers and acquisitions that would finally build regional banks into national players. But doubts that regulators would go along left other firms watching and waiting. Weeks after the marriage was finalized, headlines about a deadly new coronavirus began emerging from China. Now, PNC is anticipating a different type of consolidation.

Across the financial industry, banks are in uncharted territory, waiting to see whether letting consumers put off payments on credit cards and mortgages will be all the help they need to eventually make good on their debts once government lockdowns ease. If that doesn’t work, firms could face a tsunami of souring loans within months.

Regional banks including Ohio’s Fifth Third Bancorp and Keycorp, Rhode Island’s Citizens Financial Group Inc., Alabama’s Regions Financial Corp. and Texas’s Comerica Inc. have all lost more than 45% of their market value this year, making them cheaper already.

Many Possibilities

PNC will likely hold its capital “while it watches the U.S. economy reopen and sees how fast the economy can rebound,” according to Marty Mosby, an analyst at Vining Sparks. “Once PNC management feels like things are solidifying, it will likely push forward with an offer to acquire one of the super regional banks.”

But PNC’s announcement this week leaves open the possibility that it could look in other directions, potentially building out operations or acquiring new technology.

“The press release could not have been more blunt about PNC’s desire to buy distressed assets,” said Mayo. “But that category -- distressed assets -- could contain a wide range of banks, nonbanks, fintech, problem loans, et cetera, et cetera.”

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