Bill Demchak, chief executive officer-elect of PNC Financial Services Group Inc., plans to steer the second-largest U.S. regional bank by assets toward growing from within and away from a focus on acquisitions.
“Going forward, it’s going to be much more about organic growth — growth as a function of what we have on the table in front us,” Demchak, 50, said in a telephone interview. “The traditional value you saw in retail deposit franchises is somewhat diminished given the interest rate environment and the regulatory framework surrounding retail banking.”
Jim Rohr, 64, who steps down as CEO in April, has spent about $17.5 billion on deals since being named chief in May 2000, according to data compiled by Bloomberg News. That includes the $5.3 billion purchase of National City Corp. of Cleveland announced in 2008 and the 2011 takeover of Royal Bank of Canada’s U.S. operations.
The Royal Bank deal gives PNC a “huge organic growth opportunity” and allows the Pittsburgh-based lender to continue its strategy of adding customers and selling them more products, especially in the Southeast U.S., Demchak said.
“The markets we opened up in the Southeast, if we take our eye off that because we bought some small bank somewhere else, shame on us,” Demchak said. “The banks that are coming on the market today, the smaller banks that are struggling a bit either with asset quality or the cost of regulation, the price expectations aren’t anywhere near where we would see value.”
Demchak joined PNC in 2002 as chief financial officer from JPMorgan Chase & Co., where he was head of structured finance. Three years later, he became PNC’s head of corporate and institutional banking and was among candidates considered for the top job at Bank of America Corp. in 2009, according to Houston-based investment fund Finger Interests Ltd. Instead, Demchak was named head of all PNC businesses in 2010 and president last April.
PNC shares have gained about 1.8 percent in the past 12 months, compared with a 19 percent advance in the 81-company Standard & Poor’s 500 Financials Index.
Demchak said there will be more small banks merging as their share prices increase, giving them greater ability to do deals. Many transactions that size aren’t worth it for PNC, he said.
“You buy a small bank, you get more often than not a balance sheet that is heavily weighed, heavily skewed towards real estate assets, which means that they probably have problems on their balance sheet,” he said. “And then you begin to wonder why you would pay some of the premiums that you see.”
PNC and other lenders will need to figure out how to develop relationships with customers who are moving more of their banking transactions online, he said. The lender is closing branches while also developing new ones with more technology and fewer employees, Demchak said.
“When you’re in a digital channel, no one has quite figured out how to have a relationship with that client, which means that cross-sell is harder,” he said.