PNC Financial Services Group will be sitting on a hefty cash pile as it unloads its stake in BlackRock and Wall Street is itching to see where it is spent.
Pittsburgh-based PNC (ticker: PNC) said Monday that some of the proceeds of its $17 billion BlackRock (BLK) stake may be used to “take advantage of potential investment opportunities” that have emerged as result of unprecedented market volatility. And the reasoning makes sense.
The drumbeat for consolidation within financial services was strong ahead of the coronavirus pandemic. While deal activity has largely paused, momentum will only be stronger when economic conditions stabilize.
“In our view, interest rates will remain very low for the next 2-3 years, credit costs are rising meaningfully and tech investment needs remain significant,” Jennifer Demba, an analyst at SunTrust Robinson Humphrey, said in a note Wednesday.
Demba favors the Sunbelt for where PNC may look to make acquisitions. The region, known for lower tax rates, has benefited from the outflow of residents from congested northeastern cities. Banks in the southeast generally have strong deposit bases and some also have fee-earning wealth-management operations, providing a measure of revenue diversification.
Demba based her assessment of potential acquisitions on data for the banks’ first quarter of 2020, with the exception of regulatory core deposit ratios, for which she used fourth quarter 2019 data.
Shares of PNC tumbled 4% Wednesday as the broader sector sold off on worries of negative interest rates.
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