PNC Bank has been in the news recently for selling its approximately $17 billion stake in BlackRock, the world’s largest asset management firm. Now investor site The Motley Fool is out with recommendations on how PNC can spend that money.
It’s suggestion? Six large community banks located east of the Mississippi. According to the report, PNC CEO and chairman William Demchak has not denied his bank is looking to expand, telling CNBC that ideally PNC would look to acquire another bank that drives the company's overall strategy of becoming a national player in both retail banking and commercial and industrial (C&I) loans.
Bram Berkowitz, writing for The Motley Fool, says, “History tells us Demchak will likely look to find a candidate trading below book value at a decent discount. In 2008, during the Great Recession, PNC acquired National City Corp. for $7 billion less than National City's tangible book value, according to The Wall Street Journal.
That acquisition has proven to be a success, Berkowitz wrote, and Demchak has made it clear he would like to replicate it. "Look, if there was another National City less than book value that we can do ... of course, we would do it, but that's a value question," he said on an earnings call last July.
The six banks PNC should consider:
- KeyCorp, which has $156 billion in assets to PNC's $412 billion, would be a big fish to land. At its close on May 21, it traded for about 67% of book value. KeyCorp also has an investment bank division that brought in $116 million in fees in the first quarter of the year. This division would pair nicely with PNC's capital markets team.
- Citizens Financial, whose assets total $177 billion, is the only Northeast bank on analysts' lists of potential acquisitions. The company was trading around 45% of book value as of May 21. About 38% of the bank's total loan book is composed of C&I loans, and the bank does offer merger and acquisition advisory services.
- The $133 billion asset Regions Financial recently traded around 60% of book value. C&I loans make up about 48% of its total loan book, and the bank operates mostly in Alabama and Texas. From a deposit standpoint, the acquisition would instantly make PNC the No. 1 in market share in Alabama by a decent amount.
- First National Bank of Pennsylvania, which has $35 billion in assets, recently traded around 49% of book value. Headquartered in Pittsburgh like PNC, the two management teams wouldn't need to drive far for a meet-and-greet, and there could be some tremendous cost savings in a potential deal, considering the two institutions combined had more than 600 branches in Pennsylvania as of June 2019.
- Comerica, at roughly $76 billion in assets, recently traded around 62% of book value. Nearly 63% of the company's loan book is made up of C&I loans. purchasing Comerica would significantly help PNC in Michigan. In fact, based on market share as of 2019, it would give the bank the No. 1 deposit market share there.
- A Fox Business News report recently came out hinting that Goldman Sachs might be looking for a merger as the investment bank's profits wane, and PNC is apparently on a short list. It's hard to know exactly what to make of this considering Goldman just made a small purchase itself, acquiring a boutique wealth management custodian and technology company called Folio Financial.