PNC unlikely to buy a digital bank, CEO Demchak says

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PNC Financial Services Group in Pittsburgh is unlikely to buy a digital bank with the proceeds from its sale of BlackRock shares.

William Demchak, the $462 billion-asset company’s chairman, president and CEO, was asked about his interest in such an acquisition during a Wednesday conference call to discuss quarterly results. PNC had $4.3 billion in after-tax gains from selling its stake in BlackRock.

Digital banks have brought in a significant amount of new accounts from workers stashing checks from the first stimulus package, and digital adoption has spiked as a result of shutdown orders and social distancing measures tied to the coronavirus pandemic.

“I don’t think long-term that model works,” PNC Chairman and CEO William Demchak says of digital-only banks.
“I don’t think long-term that model works,” PNC Chairman and CEO William Demchak says of digital-only banks.

Demchak said he has reservations about a business model that adds accounts by “giving stuff away” without offering the in-person services that customers still need.

“I don’t think long-term that model works,” Demchak said of digital-only banks. “It’s kind of cool and they’re growing a lot of customers, but ... they’re not making money at it. And banking is a business that you ultimately need to make money at.”

Demchak said he was unimpressed with the technology used by digital competitors to take deposits and stash them in third-party bank accounts backed by the Federal Deposit Insurance Corp. anyway.

“There's nothing that they have that we don't have, nothing that they have that we can't produce,” he said. “They're all running on third-party banks, which is a whole other issue that drives me insane.”

Banks lack an immediate incentive to aggressively pursue deposits at a time when the banking industry is drowning in liquidity. PNC has roughly $70 billion sitting at the Federal Reserve, and Demchak said there was little more it could do to attract a return while avoiding risk.

“My best guess is we're going to be sitting on a lot of cash for a pretty long period of time as will the whole banking industry,” Demchak said.

PNC earned $1.5 billion in the third quarter, a 10% increase from a year earlier and a reversal from the loss it reported a quarter earlier. The company set aside $52 million to cover potential loan issues, a large drop from the $2.4 billion loan-loss provision in the second quarter.

Loan losses could start piling up if Congress does not approve a new round of stimulus and the virus is not brought under control, Demchak said. About six in 10 small-business owners who responded to a survey conducted by PNC said they will be out of business if the pandemic lingers for another year.

“An incredible percentage,” Demchak said. “That's why we talk about charge-offs ramping up as we get into the mid- to back-half of next year. There's going to be a lot that's going to show up."

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