How Bill Demchak turned PNC into a US banking powerhouse

When Bill Demchak, chief executive of PNC Financial, sold his bank’s position in the asset manager BlackRock in May, for $17bn, it looked like a defensive move. The Covid crisis was at a boil and cashing in the long-held, non-controlling stake would leave PNC with a bulletproof balance sheet, whatever might happen to the economy.

Mr Demchak did not see it that way. He said at the time that he could not stress enough “the importance of being able to play offence into [this] environment”. The important thing “was to stay focused on growing”, crisis or no.

The comment neatly sums up the approach taken by Pittsburgh-based PNC ever since Mr Demchak, now 58, joined the bank in 2002 as chief financial officer.

Leading PNC is in some ways a second career for Mr Demchak. He first made his reputation as the head of structured finance at JPMorgan, where he helped develop the credit default swap market which contributed to the financial crisis, and earned the nickname the “prince of darkness” from some peers.

Today, he is one of the pre-eminent bank executives in the US, feted enough to be on the shortlist to run Wells Fargo when it was searching for a new boss last year.

In the 18 years since he joined, PNC has grown its assets at a muscular 12 per cent a year — and that is before factoring in the announcement this week that it would use the proceeds of the BlackRock sale to buy the US operations of the Spanish bank BBVA for $11.6bn, adding another $104bn in assets to the current $460bn. 

The deal will make PNC the biggest of America’s regional banks, smaller only than the four national diversified banks (JPMorgan Chase, Bank of America and Citigroup, as well as Wells) and the two largest investment banks (Goldman Sachs and Morgan Stanley).

But PNC clearly aspires to be more than a regional bank, however large.

Asked how the bank has managed to grow steadily through two turbulent decades, Mr Demchak points to an earlier deal: PNC’s purchase of National City Bank. PNC paid $5.6bn in stock for the Cleveland bank in October 2008, at the very height of the great financial crisis.

The deal made PNC one of the biggest banks in the Midwest but, according to Mr Demchak, National City was a mess. “It was a massive balance sheet restructuring,” he said. “They were in businesses that they shouldn’t have been in, businesses that had high credit losses and legal risk — and so we got it really cheap.” (PNC received help closing the deal from the US Treasury, which injected $7.7bn through the purchase of preferred stock and warrants, which PNC redeemed in 2010.) 

Scott Siefers, bank analyst at Piper Sandler, puts the origins of PNC’s growth spurt earlier, amid the fallout from a scandal at the bank. PNC illicitly moved millions in bad loans off its balance sheet and into special-purpose entities in 2001, transgressions for which it ultimately settled with regulators.

As a result of the scandal, “PNC de-risked a lot”, Mr Siefers said, forcing them to sidestep trends in US banking in the early years of the century and putting them in a position to swoop on National City when others could not. “They were shrinking when every other bank was investing in the hottest real estate market in history,” according to the analyst. “They were so much better positioned than anyone else [when the real estate crash caused the financial crisis]. They were a safe harbour in a storm.”

Combining the expense bases of PNC and National City created scope for billions of dollars in cost cuts, Mr Demchak said, the proceeds of which could be invested in technology and expansion.

“Banks get hammered day in and day out by analysts [asking] ‘what is your efficiency ratio? Can you save more expenses?’ So it’s really hard to invest.” But with the savings from the merger, costs came down and investment went up at the same time. “People didn’t realise that we were actually in the process of massively investing in the future.”

Line chart of Price performance, rebased showing PNC has outperformed the US banking sector over the past 20 years

PNC ran a different playbook with its next deal, in 2011, when it purchased the Royal Bank of Canada’s US retail operations for $3.5bn. Rather than another Midwestern franchise, the RBC deal brought operations in the faster-growing south-east of the US. Rather than a restructuring opportunity, RBC was a solid operation that lacked scale. In both respects it foreshadowed this week’s BBVA deal. 

“When we did it, people screamed at us, ‘Nobody ever does a bank deal for revenue opportunities!’ And we said, ‘No no no, this is a revenue play’,” Mr Demchak said. “And we grew substantially over the past eight years. That’s exactly what we’re going to do with BBVA.”

The deal gives PNC a much stronger presence in Texas and other markets in the US south, and a presence in California.

But Wall Street has so far been lukewarm on the transaction, Mr Demchak’s first big merger since becoming chief executive in 2013.

Mr Siefers said the economic impact of the virus being milder than feared back in May worked against PNC, which may have been hoping to buy something at an even deeper discount. Some investors, he said, are concerned that “PNC sold out of a high-growth, high-multiple asset [in BlackRock] to double down on a low-growth, low multiple asset”.

Mr Siefers likes the deal, though: “It gets BBVA into a really nice markets, and I suspect that BBVA has been underinvested,” suggesting strong growth potential. 


paid by PNC for US arm of BBVA

Now that PNC is set to become the largest of the regional banks by asset value — edging out rivals US Bancorp and Truist — the question becomes, what is next? How to move still closer to national-bank status?

Asked if PNC would continue to look for acquisitions in the future, Mr Demchak gives a one word answer: “Yes.” He expects the consolidation trend in US banking to continue and he plans to participate.

In the meantime, he said PNC can and does compete with the four megabanks. He uses the example of treasury and cash management services for corporate clients. While Citigroup is dominant in this market with multinationals, he said PNC wins with domestic clients — and will build, over the next few years, the ability to serve its clients internationally. He said the bank is in the process of acquiring deposit licenses “across Europe and Asia”.

Mr Demchak’s earlier life in structured credit may seem a sharp contrast with running a retail bank and commercial lender known for the simplicity of its business model and the conservatism on credit. But he sees similarities. 

“When we built the derivative businesses years ago, that was blocking and tackling, building infrastructure, designing instant settlement and accounting,” he said.

“The two sides aren’t really so different — what I did back in the day and what I do here: you figure out what your advantages are, and you figure out what you need to do to maintain them.”

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