PNC - PNC Financial

[turar]

Is anyone buying PNC?

 

From my understanding, this is one of the better run banks with good reputation, on par with WFC, but selling cheaper. Recently bought RBC's US operatons and now fifth largest bank in the US.

[Grenville]

turar,

 

I'm a buyer of PNC. Their tangible equity is 21.6 bln at Q2 and there's about 1.5bln in equity value associated with Blackrock & Visa that doesn't show up on the balance sheet due to equity method accounting for those two positions.

 

I'm still doing my diligence, but based on just numbers it looks cheap.

[Ross812]

I know as a customer I really like PNC.  I really appreciate how in my city, they have a couple branches that are open until 6:30 everyday, and the benefits of their free checking cannot be beat. If it is any indication, I have several friends that have switched from Chase and fifth third to PNC. I haven't looked at the stock in a long time because it always traded at a premium up in the 60's, but i'll take a look at it down here. 

[ericd1]

They also have warrants, but the $67.33 strike price isn't adjusted until qty dividend exceeds $0.66 per share.

 

http://seekingalpha.com/article/257763-tarp-warrants-hidden-value-among-the-mega-banks

[Viking]

Many US banks look tempting. My bias is to go with WFC as Buffett likes it and has been buying at higher levels. USB also looks good but with lower risk and less upside. MTB also is on my watch list. All three are owned by BRK. I am thinking that buying a couple of names may be the best way to play the sector.

 

I spent a little time looking at PNC; with all their recent large aquisitions just a lot more noise than some of the other banks.

 

Late last year I bought BMO after they announced their M&I aquisition partly as a way to get exposure to US banking. Since then US banks have gotten much cheaper and BMO has gotten more expensive. Should US banks go lower in the coming weeks I likely will sell BMO and buy some combination of WFC/USB/MTB.

[Baoxiaodao]

PNC was endorsed by a friend who is an expert in banking stocks. I trust him more than anyone else.

[Grenville]

Re-posting my message from another thread here for anyone who looks at PNC.

 

Summary: PNC Financial shows too much risk. Not the right vehicle.

 

Status: Based on further analysis of PNC Financial’s financial statements, it appears that the company is taking on sizable risk outside of its traditional business model. The company has begun to write sizable amounts of reinsurance tied to third party insurance policies offered to its customers. In the past, PNC’s two wholly owned insurance business’s would write policies and limit risk with external reinsurance.

 

The amount of reinsurance exposure is large and looks to be growing quite rapidly.

Maximum reinsurance exposure

2009- 1.736 billion

2010- 4.543 billion

2011 Q1- 4.894 billion

2011 Q2 – 5.713 billion

 

Despite the quantitative discount that the share price offers, the increasing risk exposure along this avenue needs to be further studied and warrants avoiding the shares. One would prefer the bank to stick to banking and serve as an insurance broker instead of developing businesses outside of its circle of expertise.

 

Disclosure in the financials:

The disclosure in the financial has improved in the latest 10Q but still raises many questions.

 

From 2011 Q2 10Q p. 127:

REINSURANCE AGREEMENTS

We have two wholly owned captive insurance subsidiaries which provide reinsurance to third-party insurers related to insurance sold to our customers. These subsidiaries enter into various types of reinsurance agreements with third-party insurers where the subsidiary assumes the risk of loss through either an excess of loss or quota share agreement up to 100% reinsurance. In excess of loss agreements, these subsidiaries assume the risk of loss for an excess layer of coverage up to specified limits, once a defined first loss percentage is met. In quota share agreements, the subsidiaries and third-party insurers share the responsibility for payment of all claims. These subsidiaries provide reinsurance for accidental death & dismemberment, credit life, accident & health, lender placed hazard, and borrower and lender paid mortgage insurance with an aggregate maximum exposure up to the specified limits for all reinsurance contracts as follows:

 

REINSURANCE AGREEMENTS EXPOSURE

In millions

June 30, 2011 & December 31,2010

Accidental Death & Dismemberment $ 2,372 & $ 2,367

Credit Life, Accident & Health 973 & 1,003

Lender Placed Hazard (a) 1,987 & 709

Borrower and Lender Paid Mortgage Insurance 381 & 463

Maximum Exposure $ 5,713 & $ 4,542

 

Percentage of reinsurance agreements:

Excess of Loss – Mortgage

Insurance 6% & 8%

Quota Share 94% & 92%

Maximum Exposure to Quota Share Agreements with 100% Reinsurance $ 973 & $ 1,001

(a) Lender Placed Hazard contract including stop loss provision expired in the third

quarter of 2010. Stop loss provision not available on replacement contract.

 

A roll forward of the reinsurance reserves for probable losses for the first six months of 2011 and 2010 follows:

 

REINSURANCE RESERVES – ROLLFORWARD

In millions 2011 & 2010

January 1 $150 & $220

Paid Losses (73) &  (43)

Net Provision 16 & 21

Changes to Agreements nil & (3)

June 30 $ 93 & $195

 

Changes to agreements only represent entering into a new relationship or exiting an existing agreement entirely. The impact of changing the terms of existing agreements is reflected in the net provision. There is a reasonable possibility that losses could be more than or less than the amount reserved due to ongoing uncertainty in various economic, social and other factors that could impact the frequency and severity of claims covered by these reinsurance agreements. At June 30, 2011, the reasonably possible loss above our accrual is not material.

 

[turar]

Thanks Grenville. Which thread is that from, I can't seem to find it.

[Grenville]

Thanks Grenville. Which thread is that from, I can't seem to find it.

 

Hi Turar,

 

Here is the thread:

 

http://www.cornerofberkshireandfairfax.ca/forum/index.php?topic=5190.0

[sleepydragon]

PNC has a huge holding in blackrock, I think 20 billion.

The tax bill shall lower their deferred capital gain tax.

Plus they also get benefit of lower tax rate or future higher inflation.

Seems a good buy now?

 

[thepupil]

PNC is finally selling off their BLK.

 

BLK is down 5% on the news to ~$72 billion and PNC owns 22% thereof or about $16 billion gross of any further declines and taxes.

 

PNC carries Blackrock at $8.7 billion. If we assume some further declines in BLK to $15 billion, and PNC is able to print the shares there, then they should gain about $6.3 billion on the sale. I don't know their tax basis in the BLK but will assume the same as their book value (any thoughts here?) so that's $1.2 billion of taxes. At the extreme of a zero basis, that would be $3 billion in taxes. At the other extreme, maybe they don't pay taxes on it because they lose a lot of money this year?

 

So my guess is that something like $12 - $14 billion of cash is about to show up on PNC's balance sheet (of course PNC will lose the earnings power of its previously owned BLK).

 

PNC has $445 billion of assets and $49 billion of accounting equity (~$40 billion of tangible subtracting the $9 billion of goodwill), so this strikes me as a somewhat material de-risking of the balance sheet (from common equity in an asset manager to cash) that would leave PNC in relatively better shape to absorb loan losses that will hit the banking sector. the commentary thus far is that it will allow them to go on the offensive and maybe make an acquisition.

 

the stock trades for $42 billion (~1x tangible if my lightning round review of everything is correct) so maybe it's not super interesting, but it's rare that one of these big liquid hold forever stakes (such as PNC's BLK investment) gets monetized and I wanted to flag it as a change in fundamentals to the state of a big company.

 

no position, outsource my banking exposure to BRK/B.

[thepupil]

From Barrons:

 

The bank’s stake in BlackRock accounted for roughly 15% of its earnings in 2019. Yet while the BlackRock stake contributed to earnings, PNC also had to hold capital against its stake in the asset manager--“a punitive 250% risk-weighting against the $8.5B holding,” according to Ken Usdin, equity analyst at Jefferies.

 

PNC’s estimated $5 billion gain from the sale should boost the bank’s Tier 1 capital ratio to 11.5%, from 9.4%.

 

[vinod1]

Wow! Selling out BLK at $415 to $420 at a pretty big discount to the recent $480 to $500 range that it was trading at.

 

Vinod

[thepupil]

Agreed so more like $10-$12B depending on tax.

[fareastwarriors]

PNC to buy U.S. operations of Spanish bank BBVA for $11.6 billion

 

 

https://www.cnbc.com/2020/11/16/pnc-to-buy-us-operations-of-spanish-bank-bbva.html

[Dalal.Holdings]

A single digit PE stock making a purchase of a company in the same sector at a PE of 20–and that’s 20x 2019 earnings too...

 

Are BBVA’s U.S. assets worth it?

[CorpRaider]

Anyone see the multiple of TBV they are paying?  I think WFCs new COO came from BBVA U.S.  One of Charlie's old JPM pals.

[Dalal.Holdings]

Scott Powell is from that other Spanish bank with U.S. presence—Santander. I don’t know much about BBVA’s U.S. operations.

 

The CNBC article says 1.3x book or so, haven’t taken a deep look yet tho and don’t know tangible book, but it’s gotta be at least 1.3x.