PNC (PNC) CEO Bill Demchak is not happy that he is still paying for the March 2023 banking crisis.
The boss of the nation’s sixth-largest bank recently learned that PNC Financial Services Group will have to shell out another $130 million to the FDIC to cover losses associated with the seizures of Silicon Valley Bank and Signature Bank — on top of $515 million it already paid in the fourth quarter.
Other large banks are also seeing their bills rise as they are asked to pay $4 billion more to replenish the FDIC’s insurance fund.
"I’m a little bit raw at the moment," Demchak said in an interview with Yahoo Finance. "We just upped the size of the check we are paying to the FDIC because they didn't do their job."
The rising FDIC payout is the latest of many lessons Demchak is still learning from the 2023 regional banking tumult.
It turned out to be a seminal experience for PNC, but not because it ran into trouble. It didn’t. In fact, PNC tried to play the role of rescuer by bidding for the assets of the failed First Republic last May.
Instead, the fallout from the events of a year ago convinced the bank’s boss that a lot has to change — in Washington, D.C., and at Pittsburgh-based PNC.
US regulators, he said, need to do more to prevent banks from going down, do a better job at handling failures, and make it easier for regional banks to get bigger so they can compete with the giants of the industry.
That way all of the power isn’t concentrated in the hands of JPMorgan Chase (JPM) and Bank of America (BAC).
Such a scenario, with two banks looming over the rest of the industry, will result in a "20-year train wreck" for the country, he said, because he views such concentration as bad for US economic activity and the consumer.
Demchak now wants PNC to evolve, too, so it’s no longer considered a regional bank. That means getting bigger on its own, organically or through acquisitions, and by establishing a coast-to-coast brand without straying from its roots as a plain-vanilla lender.
To that end, PNC is spending $1 billion on 100 new branches throughout the US and renovating nearly half of its existing 2,300 locations.
It is also rolling out an ad campaign Monday that positions PNC as a "boring" bank that helps customers and businesses build wealth without taking giant risks.
"Surprises," begins the slogan of one ad. "Good for parties. Bad for banking."
'Too big to fail used to be a scarlet letter'
Demchak has not been shy about expressing his views in recent months, triggering a new debate within the industry about the place of mid-sized banks and arguing that "scale matters" like never before.
Corporate depositors, he said, no longer trust US regulators to keep all banks safe, and these customers will likely migrate to national giants with implied government backing.
"'Too big to fail' used to be a scarlet letter. Now, it's a good thing," said Demchak. Last March when "corporations somehow realized, ‘Hey, my money's at risk,’ all that money flowed uphill to the big banks and I just don't think it's ever going to flow back,'" he added.
PNC has in the past used acquisitions to get bigger during times of industry-wide stress. During the 2008 financial crisis, it was encouraged by the US government to buy Cleveland rival National City for $5.2 billion, which basically doubled its size.
Demchak arrived at PNC, a bank based in the area where he grew up, when he was 40 — after working on Wall Street for JPMorgan in the 1990s. He served as PNC’s CFO and head of corporate and institutional banking before becoming CEO in 2013.
He has since used more acquisitions over the last decade to establish a foothold in nearly every top metro area in the country.
His last was a $11.6 billion deal for the US operations of Spanish banking giant BBVA that closed in 2021. PNC now has roughly $557 billion in assets, well behind the $3.4 trillion held by JPMorgan.
A 'pretty flawed process'
The CEO tried last year to get even bigger. PNC was asked by the FDIC to submit a bid to acquire the operations of San Francisco lender First Republic, which would have given it a much larger foothold on the West Coast.
PNC put together a bid with money manager BlackRock (BLK) and private equity giant Apollo, and was willing to act as agent between the companies and FDIC. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
But it lost that auction in the early hours of May 1 to JPMorgan, the nation’s biggest and most profitable lender.
"The process was pretty flawed," he said. "Part of me thinks right now, we'll never try again."
His deal, he said, "would have saved the FDIC a lot of money" and "I'm a believer that they should have figured a way to get outside non-bank capital into the process to buy some of those assets."
But the FDIC has "just never done that before and they need to build a process to allow that to happen."
Does PNC want to become the next JPMorgan? No, Demchak said. He does want it to compete with the coast-to-coast giants for traditional banking business across the country, but he doesn’t want PNC to spread into Wall Street businesses such as trading or lending to hedge funds or to become a multinational lender.
"It’s a lot smaller than being a JPMorgan and importantly, very different," he said.
PNC recently elevated Mike Lyons as Demchak’s potential successor, naming Lyons as president. But the 61-year-old Demchak said he still has no plans of retiring.
"I'm not going anywhere. I’ve got a lot to do."
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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