PNC Financial Services Group Inc. said Tuesday it has agreed to sell 28.75 million common and preferred shares of BlackRock Inc., the world’s largest asset manager at $7.4 trillion on Dec. 31.
William Demchak, PNC’s chairman, president and chief executive, said the projected $15 billion or more gained from the stock sale could be used to pursue large-scale deals within the financial services industry.
Analysts have listed five regional banks — Citizens Financial Group of Providence, R.I., Comerica Inc. of Dallas, KeyCorp of Cleveland. Regions Financial Corp. of Birmingham, Ala., and Synovus Financial Corp. of Columbus, Ga. — as potential takeover targets for PNC.
Those banks are likely to be on Truist Financial Corp.’s acquisition list if they are available.
However, Truist is likely on the sideline through at least the third quarter of 2021 given it is taking a deliberate approach to merging the legacy BB&T Corp. and SunTrust Banks Inc. operations and branch networks.
PNC, based in Pittsburgh, entered North Carolina in March 2012 when it completed a $3.45 billion purchase of the U.S. retail operations and credit-card assets of the Royal Bank of Canada.
Truist passed PNC as the sixth-largest U.S .bank in December when BB&T completed its $33.5 billion purchase of SunTrust. As of March 31, Truist had $506 billion in total assets, ahead of PNC with $445.5 billion but trailing US Bancorp at $543 billion.
PNC began buying BlackRock stock in 1995 and currently holds a top ownership stake of 22%.
The next largest BlackRock shareholder, The Vanguard Group Inc., owned just under 9 million shares, or a 5.8% stake, as of March 31.
The registered offering price is $420 per share for a combined total of $12.07 billion.
Separately, BlackRock is repurchasing 2.65 million shares from PNC at $414.96 per share, representing just under $1.1 billion.
“BlackRock’s long track record of strong performance and growth has created significant value since PNC acquired our stake in the company,” Demchak said in a statement. Demchak has served on BlackRock’s board of directors since 2013.
“As good stewards of shareholder capital, we have consistently reviewed options to unlock the value of our investment.
“We feel the time is now right to do just that, realizing a substantial return on our investment, significantly enhancing our already strong balance sheet and liquidity, and leaving PNC very well-positioned to take advantage of potential investment opportunities that history has shown can arise in disrupted markets.”
Wells Fargo & Co. analyst Mike Mayo told Bloomberg News that PNC is building “a war chest” for acquisitions.
“The press release could not have been more blunt about PNC’s desire to buy distressed assets,” Mayo said. “But that category — distressed assets — could contain a wide range of banks, nonbanks, fintech, problem loans, etc., etc.”
Brian Klock, an analyst with Keefe, Bruyette and Woods, said PNC may look to acquire a payments/fee business with the capital generated.
“However, our merger model scenario analyses show the economics would be attractive for theoretical acquisitions of Citizens and KeyCorp,” Klock said.
Klock said he doesn’t believe the timing is good for PNC to consider a major share-repurchase program as many corporations have eliminated such strategies, either in the short term or through the rest of the year.
“Bill Demchak’s quote clearly indicates to us that PNC is interested in making an acquisition,” Klock said. “In the past, he has not been in favor of bank deals; however, valuations have become more attractive in our view.”
Goldman Sachs analyst Richard Ramsden said PNC could use the proceeds for stock buybacks.
“We estimate it would be a 12% benefit to earnings per share (in 2021),” Ramsden said.
“Given the uncertainty around the macro environment, the proposed sale of the BlackRock stake should put PNC in a stronger position relative to peers to either absorb significantly higher credit losses than we are currently forecasting, or capitalize on potential asset sales.”