PNC’s Demchak Wants to Use Open Banking to Boost Growth

PNC needs to expand its retail presence in new markets “quite aggressively” to support its long-term growth strategy in corporate and institutional banking, Chief Executive Bill Demchak said Monday.

“We need to make sure we’re building a core deposit franchise that can fund the business over the long term,” said the CEO of the Pittsburgh-based bank.

The superregion spends about $1 billion for building new branches and renew others over the next four years, as part of an effort to gain “significant” share in some newer markets, Demchak said. Areas of focus for the branches include major cities in Texas, as well as Miami and Denver.

Organic growth is now much more important to the $557 billion-asset lender than trying to expand through acquisitions, Demchak said.

“We’re going to build this place, and I think we can do it,” Demchak told Barclays analyst Jason Goldberg during Conference appearance on Monday.

But bigger rivals JPMorgan Chase and Bank of America have Demchak on alert.

“Big banks building branches in every city in America, over the long term, is the problem,” the CEO said. “So we have to fight that. That’s my concern.”

Demchak expressed confidence in PNC’s ability to grow its corporate and institutional banking business, adding that the bank has had success replicating its strategy in that segment in new markets.

Last year, PNC reported revenue from its corporate and institutional banking unit rose 6% to a total of $9.4 billion. bank’s annual report. For second quarterThe bank’s revenues in this segment fell by 7% year-on-year, the average value of loans was stable, and the average value of deposits fell by 2%.

But PNC – which had $416 billion in deposits from June 30 — is set to increase its share of deposits, while JPMorgan and BofA could eventually grow theirs organically at the rate of “PNC every five or six years,” Demchak said.

To combat this, PNC needs to make sure it takes back its share of the business over time, and Demchak predicts that open banking will make that easier. The Consumer Financial Protection Bureau issued a long-awaited open banking proposal last October and he said in June The regulations will be finalized in the coming months.

“We will withdraw shares from smaller banks that will not have the technology to take advantage of the benefits of open banking,” Demchak said.

Regulators “are doing this because they think it will reduce the cost of switching,” he said. “All it will do is drain (small) banks of their accounts, through the big banks that have the technology.”

Acting Comptroller of the Currency Michael Hsu noted immediate portability of accounts within Open Banking could lead to an increase in the outflow of funds from the retail banking sector.

As for PNC, “I have to make sure that of all the 5,000 other banks that are going to be drained by the giant banks, we’re doing our part to grow within that,” Demchak said. “We’re getting there with a different market model, cutting-edge technology, customer obsession, and we’re not one of the big bad guys.”

Acquisitions could help the bank quickly achieve scale, but Demchak said PNC is not willing to pay a “dumb price” for a “failed” franchise.

The bank has been considering a number of potential acquisition targets, and “increasingly, the deposit franchises of some… players are deteriorating,” with more “hot money,” brokered and high-yield deposits, he said. And the asset side of the balance sheet is increasingly focused on commercial real estate.

As for the possibility of a merger of equals between PNC and a rival, Demchak expects that from a regulatory standpoint, “it’s going to be on the waiting list for the rest of our lives.”

In the long term, as the financials around a potential deal make more sense, PNC is much more likely to execute quickly and efficiently “small, in-market transactions with really high cost reduction numbers,” he said, where “the cost savings cover the sins of the balance sheet.”