Last week, PNC Financial Services Group (NYSE:PNC), the holding company of PNC Bank, said it would sell its entire stake in BlackRock, prompting rumors that it could soon make a big splash with an acquisition. PNC CEO and Chairman William Demchak did not deny the chatter, 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.
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, 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.
Analysts from SunTrust and Keefe, Bruyette & Woods have speculated on several banks PNC might be interested in purchasing. The names that intrigue me most are Comerica (NYSE:CMA), Regions Financial (NYSE:RF), Citizens Financial Group (NYSE:CFG), F.N.B. (NYSE:FNB), and KeyCorp (NYSE:KEY) (as well as Goldman Sachs (NYSE:GS), which came up elsewhere).
Let’s take a look at how each might help PNC move forward based on C&I loans, deposits, and maybe even investment banking.
KeyCorp, which has $156 billion in assets to PNC’s $412 billion, would be a big fish to land. Through Thursday’s close, it traded for about 67% of book value, and it’s on KBW’s list of banks that may soon cut its dividend. But C&I loans make up over half of the bank’s total loan book. KeyCorp also has an investment bank division that brought in $116 million in fees in the first quarter of the year, and $181 million in the fourth quarter of 2019. This division would pair nicely with PNC’s capital markets team.
One thing we can also look at is how deposits might mix at two institutions. All deposit data is from the FDIC as of June 30, 2019, the most recent data available, and it shows the percentage of market share a given bank has in terms of deposits in a given state. The acquisition of KeyCorp would bring a lot of geographic diversity with it. It would launch a presence in eight new states that PNC has virtually no presence in, although some of those states are pretty far from PNC’s current geographic footprint. It would also give PNC some nice tailwinds in Ohio and Indiana.
Read More: 6 Banks PNC Might Want to Buy