We'll go ahead and get started. So next up we have Rob Reilly, CFO from PNC. Rob, thank you so much for joining us.
Great to be with you.
There's a lot to talk.
I'll have a seat here, yeah.
Yeah. I guess it's hard to talk about PNC without talking about M&A and what's going on.
Right, right.
And we did get some transactions over the last 24 hours.
Yeah.
Which is good to see some life in the sector.
Right.
But give us a sense, [when]. I think the notion of Bill's comments during the fourth quarter call around the need for scale puts contextualize that for us in terms of what does it mean. And you'll hear from some of your peers that some of the largest banks are in trillions of dollars. So what's the right scale? Yeah.
Sure. Yeah, sure, sure. So good morning, again. Thanks for having us. Good to be with you all this morning. You know, the first thing to say from PNC's perspective, particularly in the context of this week, is we don't have an imminent deal that we're thinking about or that have our mindset on or that we're currently working on. So, you know, just get that out there, straight away. But we do think it's important to talk about scale, in the banking industry in the U.S. Some of the reasons for that have been around for a while, that aren't new. Naturally, when you take a look in terms of bringing innovative products and services into a national distribution, scale helps.
Yep.
Everything that you talk about in banking in terms of doing that, in addition to protecting the bank, requires a tech stack that is large and expensive, at scale. And then you're seeing regulatory sort of detailing.
Yep.
Where the advantages of being small, from a regulatory perspective, are diminishing.
That's right.
So nothing new there, necessarily in terms of, you know, the way that we've looked at it. What was new was last March in our view, when the disruption came through with the bank failures. We saw in real time, in March of last year, a movement to the sentiment that particularly in corporate treasurers with uninsured deposits, that bigger is safe.
Yep.
We were the beneficiary of that. We grew average and spot deposits in the first quarter of last year simply because we were viewed as safe. And so did the other large, large players. So, you know, you take a look at that, we look at it every day. So we see it every day. We like talking about it because we're not sure everybody involved, all the constituencies do see it, look at it every day and fully appreciate that. You know, from PNC's perspective, you know, it's, it's easy to conclude, and I think you would agree, scale equals growth. So the scale providers are growing at a higher rate than the non-scale providers. So we think it's plainly evident. The good news for PNC is, we are a, a skilled acquirer.
I think we're viewed, largely in terms of being, good at it, if and when the opportunity occurs. So we're positioned for that, the BBVA acquisition from a couple of years ago. We from announcement to full integration was less than a year. Pretty good.
Yep.
Of a $100 billion bank. So you got to show that you're capable. But in the meantime, we've got great and we'll talk a little bit about this. We've got some great organic opportunities, particularly in the new markets that we're in that are all tracking well. So, you know, we're not reliant on a, on an immediate acquisition, but we do see through time, the need for more scale.
That's helpful and not to pin you down, but I'm just wondering, when you think about acquisitions, would a $100 billion asset bank still be of interest? Does it move the needle for you?
Yeah, I, I think so. You know, we get asked that lots of times of, "Hey, where's the target?
Right.
I don't have a clear answer for you other than bigger. And then when, you know, we talk about individual transactions, you know, either in the particular or in general, you know, we always say, "Hey, we know how to do the math." So, if it's good for our shareholders, we'll do it. And if it's not, we won't. You know, larger is obviously in the context of what I just said, more attractive than smaller, but that doesn't necessarily prohibit smaller acquisitions.
Noted. Okay. I guess maybe switching gears to one of the hot topics around commercial real estate.
Sure.
Just talk to us. I mean, obviously, I mean, I think you build reserves about 8.7% against the office CRE book.
Yeah.
Spend some time there in terms of the visibility you have in the reserves that are built and just outlook for losses as you look forward.
Yeah, sure. So, you know, again, nothing new there. The concern obviously is within the office space, within the commercial real estate portfolio. We've dimensioned it, and it's relatively small for PNC.
Very good.
In terms of percentage and even absolute dollar amount. So we, we can manage it. You know, we moved pretty aggressively in terms of reserves even though the model suggested because there were no delinquencies that there wouldn't be losses. You know, common sense told us in the cases particularly of vacant buildings or leases that are coming up and maturities that are coming up that we're going to have some losses.
Yes.
So we reserved pretty aggressively during the course of last year to where now we're on total office; we're just below 9%. Then inside of that, and this is important, this is an important distinction, inside of our office portfolio is the multi-tenant portfolio, which is where we see this stress. Single tenants actually holding up pretty well. In the multi-tenant, which is about $5 billion of outstandings for PNC, you know, our reserves are close to 13%. So we look at the criticized number, which is about 25%, criticized in terms of that book. We will see inside of that some of those criticized move into non-performing, some of those move into charge-offs, which is the natural progression. And that's happening. So, you know, we feel good about the reserves. There's still not a lot of movement in terms of transactions.
So there's varied outcomes in terms of. There's a lot of extensions that go on properly structured. So not pretend and extend, but extend justifiably. But there are some cases where extension isn't going to be possible, and we'll take those losses, you know, against those reserves. We're going to find out soon enough. You know, 30%-40% of our office portfolio matures at the end of 2024, and multi-tenant inside of that is closer to half. So we'll move through. We'll move through this, you know, pretty quickly.
So you're right in terms of we've seen very limited transactions.
Right.
But at the same time, it feels like there's a pool of buyers and capital waiting to step in. Like, would you agree with that?
Yeah, I would agree with that. Yeah, I'd agree with that. You know, there's a lot of money out there, you know, circling. I, but, you know, there's an issue, that's different than most commercial real estate downturns in the case that these, these buildings, there's just nobody wants them.
Right, yep.
You know, it's not a case of they still want them, but we want them at a lower price.
Right.
So, I think that is a distinction that's, you know, worth keeping in mind.
I think that it's a good segue into multifamily.
Yeah, right.
Because I think that sums up why multifamily is not office.
Yeah, that's right.
Just talk to us in terms of your exposure and just your view around what credit trends might kind of evolve within the multifamily book.
Yeah, no, it's a good segue into it because, in contrast to what I just described in office, in multifamily, we don't expect meaningful losses.
Right.
You know, we see sort of normal through the cycle, interest rates rise, but there's, you know, a structural shortage of housing. Multifamily is filling that structural shortage. There's cash flows.
Yep.
There's some stress on the portfolio, where you'd expect it where, you know, rates have risen and if the owner is refinancing, that's, you know, challenging.
Right.
but there's not anything in the sense of where there's the buildings aren't wanted. So, you know, you might have some pockets of where there's some overbuilt geographies. You might have some people whose loans unfortunately are coming up sooner than they but they'll be able to normalize that out.
Okay.
In the case of PNC, you know, most of our multifamily is spread out. We don't have any geographic concentrations. We have very little in terms of high-rise multifamily in the urban cities and geographies that you read about.
Got it. I guess maybe just if you put all this together in terms of your charge-off outlook, I think you've given guidance for first quarter.
Yeah.
But give us a sense of, like, if you think about it, and I think it came up on the PNC call whether or not you would release reserves at some point this year. Just the evolution of charge-offs, what do you think is the normalized level of charge-offs as we move forward?
Yeah, well, so, so we're well reserved. You know, we're at 1.7% as you know in terms of our total reserves. And that's been pretty steady over the last, last couple of quarters. It's above our day one CECL. So if day one CECL is normal, you know, we're a little bit above normal. You know, we've been surprised pleasantly, as, as, as, as everyone else in terms of the losses haven't normalized. We've been calling for normalized losses for the last, well, I don't know, Ebrahim, two years, three years, and there hasn't been a whole lot of that. So, you know, in terms of our charge-offs, you know, we've, we've been sort of saying between $200 million and $250 million is what we've had in the first quarter. And I expect it to be around that, maybe drift up in the outer years a bit, but not a lot.
Got it. So when we look at that, and part of that is you're right, we've been talking about the recession since 2022 now.
Yes.
There's an upturn.
Yes, yeah, right.
Right?
Right.
So when you think, how would you describe the customer sentiment across your markets? Like, are businesses feeling good about life? Are they investing? Just what's the sense?
Yeah, I think, you know, you break that down in terms of consumer and commercial. And roughly speaking, we're 2/3 commercial, 1/3 consumer in terms of our, you know, our loans outstanding. The, you know, on the consumer side, the consumer's in pretty good shape. You know, we've all heard that unemployment numbers are favorable. People have jobs. There's cash in the accounts.
Right.
You know, generally the consumer's in pretty good shape. On the commercial side, I would say similarly in very good shape, commercial real estate aside, you know, in terms of credit quality. But I would say on the commercial side, we definitely see some caution. You know, you're seeing that in the H.8 data a little bit. Bryan referenced that with you just a little while ago. So you're seeing some caution. They're doing well, but there's just sort of this outlook in terms of this changing sort of, outlook in terms of, and we agree with this now, not a recession.
Right, okay.
But some stability factors showing up, which, you know, largely is around what the Fed does and when they do it. So there's just a little bit of, I think, just a little bit of caution there in terms of full-go mode.
Right.
You know, we'll see that coming hopefully in our thinking in the latter part of 2024.
That, I guess, probably informed your guidance. I think it's spot loan growth about 3%-4%.
Yeah.
You still feel like that attainable given just we got a quarter?
We do. So, you know, in terms of guidance, our full-year guidance holds, and we see that playing out. In terms of the first quarter guidance, you know, maybe a small tweak to that, again around this issue. So we had called for average loan growth to be stable. It's likely to be less than that, so maybe down about 1%. And that's fully a function of utilization rates that haven't risen, that we just talked about, that haven't risen like they typically do in the first quarter. So they're still sort of at that seasonal low. We expected that to come up a bit. We still expect it to come up, but, you know, we're a month and a half into the quarter.
So, by extension, we'll probably have a little bit less NII because of lower loan volume, where we had previously guided in the quarter to down 2%-3% in NII. We're probably now looking at down maybe 3%-5%. So not a big change, but just reflecting that. And then importantly, that's all on the loan side because deposits, which we haven't talked about yet, is actually behaving a little better than what we expected. Still down a little bit, some seasonal. But, you know, all of last year NII was about deposits and what was going on in deposits. That's not the case in this quarter. So, a little bit less in NII, but all the other guidance, you know, tracking to what we said.
I guess, so maybe just talking about NII and deposits and all of that.
Yeah.
Talk to us around the base case informing your NII outlook for the year. And I think, since you reported earnings, the question is if you get only two or three rate cuts, what does that mean for NII?
Yeah, so, you know, we feel pretty good about our NII guidance largely, largely because of, we've worked hard, as you know, to get our balance sheet into a neutral rate position. So we worked hard to do that. And, you know, that was part of a deliberate move on our part in terms of the environment that we're in. So we're really in a place, right now in February of 2024, that through the course of 2024, we're not real exposed to whether there's more rate cuts or less rate cuts. That variance has come down considerably because of that neutral position. And, you know, that, that feels good.
Got it. And on deposits, so you mentioned I've heard some of your other peers talk about the pricing competition's already easing.
Yeah.
Would you agree with that? Are you saying?
I think so. You know, we're definitely in the later stages. And the loan, the loan issue in terms of being a little softer might be contributing to that a little bit. But I think, more so, it's just that, you know, it's run its course a little bit. You know, we've talked about that. We've shown that; it was being called the swoosh curve.
Right, yeah, yeah.
Along those lines. So, you know, we're normalizing out where deposit pricing largely has caught up after having lagged, which is part of the cycle. It was just the magnitude of those rate increases, you know, to 5x, that really put the pressure on us in 2023. And some of that'll drift into 2024 and that, and that's all part of our guidance.
Right.
But I think, you know, we're in the later stages. It's settled down considerably from, you know, what we saw last year.
Got it. So fewer rate cuts shouldn't have a big impact. Loan growth probably has some negative impact on full-year NII outlook.
No, no, no, I don't think so because, you know, within the quarter and the increments that I'm talking about in full year, it's, it's not, it's not meaningful to take you outside of the range.
Got it, got it. And just talk about deposits. I mean, I think the question is if we are in a structurally different rate backdrop in the next five years or 10 years, like, what does it mean in terms of the mix of CDs or non-interest bearing? Like, do you think we are at a steady state already or?
Well, I think, yeah, I think, well, I would say close to a steady state. So, you know, the big change for us obviously was the mix of non-interest bearing, you know, going from somewhere in the 30% range to the mid-20s about where we are now, where we expect it to sort of stabilize. And we're seeing that. And that's in large part about, given about the nature of those deposits, which are largely tied to our operating accounts, also entities that pay for their services through deposits. And generally speaking, this deep into the rate cycle, if you haven't moved from non-interest bearing to interest bearing, you're probably not.
Right.
You've probably got that memo by now. So, so I think it's, it's sort of stabilized. You know, we still see for the full year, you know, deposits declining in total as deposits leave, you know, the system. But, you know, not, not anything outside of what we've already talked about.
Do you worry much about the QT and the overnight RRP balance coming down? Is that, that kind of?
Well, that'll be part of it. You know, that'll be part of it. But again, I just see that as, the normalization. We're sort of going back to the pre-pandemic balance sheet.
Right.
In terms of, and you know, we get into this in terms of our wholesale funding and the mix and everything sort of trending to those normalized levels, not outside of that. So I would say with all of, all of the efforts to remove deposits from the system, we're just going back, back to the future.
Right.
Yeah.
Thinking about deposit growth going forward, like, in my view, there are two ways historically banks have grown deposits.
Yeah, right.
Branches or M&A.
Yeah, right.
You announced, I think, a billion-dollar plan to.
Yeah, yeah, that's right. Yeah, we did that. No, no, thanks for asking that. Yeah, so we announced last week.
Last week.
Yeah, and this was all part of our guidance and part of our strategic plan, but we went public with it in terms of a, you know, significant investment, a billion-dollar investment to the build-out of our branches, both new and the renovation of existing branches. The new part is, you know, the part that everybody gets excited about, and that's really an extension of our success in these new markets in the Southwest, and was part of the plan. Actually, we're a little ahead of the plan, but think about branches in terms of increasing branches in Dallas, Houston, Austin, Denver, those types, those types of cities where we've done really, really well. In the first couple of years that we've been operating in, we're now at the point in terms of our evolution to where we can expand that, and grow that distribution.
Generally, you know, these are, these are general numbers. If you can get to high single-digit market share, which we think we can with some of these moves, you know, you get that sort of, compounded lift, in terms of the critical mass, that those provide. So, so that's, that's really just sort of a piece of evidence in terms of how well and how excited we are about these growth markets, how well we're doing and how excited we are about these growth markets. Then the renovation of the existing, that's just a commitment. Again, back to the scale issue around the tech stack, and around the products and services that, today and tomorrow's consumers, demand.
On net basis, do you think the footprint grows, like in terms of the net number of branches over the next few years or?
Yeah, I think so. I think incrementally. I mean, we'll still consolidate, you know, so we're not, we're not going to go to a dramatically different place. You know, we're right now 2,300 or 2,400 branches. So we'll, we'll be around that.
Right.
You know, that's of course something that we'll continue, you know, continue to manage.
Got it. I think the other announcement you had was earlier this week with the, I guess Mike Lyons taking on the president role. Just talk to us about thought process there. It means clearly, and I think Mike, correct me if I'm wrong, was kind of led the charge with the RBC acquisition and then with BBVA sort of.
Yeah, yeah. So, a couple of things on that. We announced that Mike Lyons, who is the head of our commercial and investment bank, C&IB we call, was promoted to president, the job of president. And that job will oversee not just C&IB, but our other business segments, our asset management and our retail segment, as well as our regional president's model. And that's important in terms of part of the thinking. So it's good, it's good. It's good on all counts. I mean, on a personal level, it's obviously always good to see a colleague advance and be promoted in sort of the natural career progression. So that's a good thing. But importantly, there's a functional component to it.
If you think about just sort of what I was talking about in terms of what we're doing and how we're trying to advance it, the ability to pull all our businesses together. We do have a regional president's model where we go to each of these markets as one bank with the regional president as the leader. So Mike, being able to oversee all of that, we've already been pretty successful in terms of bringing the whole bank to the market. We're hoping to increase the connection across those businesses because the opportunity is so large and because it's gone so well and we've been received so well in these markets. The markets are making this opportunity available to us. So it's good all around.
Got it. Any other sort of organizational changes that might follow as a result of this or?
Potentially, but nothing that, you know, that just might be some ways that we sort of arrange our, you know, our go-to-market strategies, but nothing that is radical in terms of a departure. You know, this is, it's just good timing in terms of Mike's progression and it's also good timing in terms of the opportunity that we see.
Got it. I guess maybe just going back to investment, we talked about branches. Like, PNC has always been focused on efficiency and driving growth.
Yeah, right.
Just talk to us around where the efficiency opportunities are, where you're investing, and like, how should we think about what's the normalized expense growth outlook?
Yeah, yeah. So we, yeah, you know, we're very disciplined around our expenses and, and that's been the case for a number of years. We like to manage the positive operating leverage, and we've done that for the better part of the last 10 years or so. You know, when we were in last fall, when we were taking a look at the outlook in terms of 2024, we could see the positive operating leverage was going to be very difficult because of the NII effect of the troughing before it goes back up. Not a lot that we can do about that. But we did think that we'd need to be in a position to be able to hold expenses stable.
And that necessitated a work restructuring program that we announced and implemented in the fourth quarter of 2023, about, you know, $325 million or so in savings. The continuous improvement program, which is separate than that, that we have in place and have had in place for the better part of the last 10 years, is our annual cycle in terms of where we recycle expenses for investments. So our continuous improvement program, along with the actions that we took with the work restructuring, have us feeling very confident about expense management in 2024 in terms of being able to keep it stable. We'll continue to manage that aggressively. And again, this gets back, Ebrahim, to the scale issue. You know, when you're spending, you know, billions and billions of dollars, you look for those kinds of efficiencies.
For us to be able to generate $425 million annually in terms of those savings, that's a, that's a scale issue or a scale advantage. So, you know, we feel good about, we feel good about the expense discipline. Looking out, and this isn't guidance, but generally speaking, if you take a look at our strategic plan and you take a look at the composition of our businesses, you know, we can, we can pretty much count on or manage to mid-single digit, maybe a little bit higher than that, revenue growth, low single digit, expense growth in a normal world, which, you know, might be a little ways off. But that works for us. And like I said, the composition of the businesses and the diversification of the revenues and the geographies has us pretty excited.
Got it. Just on expenses, I mean, again, the biggest debate I think for banks in near term is going to be what happens to inflation and how that informs the Fed outlook.
Yeah.
Just as you're managing expenses, hiring of people, technology spend, are you seeing inflation recede? Like, do you feel good about?
Yeah, yeah, well, you know, I wouldn't say we feel good about it, inflation. I mean, things naturally cost more.
Right.
But I do think we're on it and we're confident that we can blend it into our business model and be successful.
But do you see, have you seen the price pressures recede over the last year or two or?
I slow down.
It has. Okay.
Yeah, slow down in various places. You know, our biggest spend, no, no, no surprise is technology, where we continue to increase. And sometimes in technology prices go down and sometimes they go up, but generally the total spend goes up.
And on technology, AI, is it meaningful? Is it?
Yeah, yeah, it is. You know, we've always said, and now a lot of other people are saying it, that, you know, we were doing AI before AI was cool.
Mm-hmm.
A lot of that is in our back offices. And we've got a lot of activity that is AI, you know, particularly around, if you think about sort of, you know, high volume sort of vetting of high volume data.
Yep.
Which we have a lot of. And we're mindful in terms of where the opportunities are. I wouldn't say that it's, you know, radically changing everything.
Right.
It's certainly present and, you know, something that we're mindful of.
Got it. I guess maybe switching gears to fee revenue growth outlook.
Yeah.
I think capital markets seem like will be a big force on whether, how that plays out over there. Just talk to us about what the expectation is on capital markets and how are things evolving.
Yeah, sure. So, you know, the fee components of our revenue stream are very important. Capital markets is a, is a big one. The other ones, I'll come back to capital markets, you know, asset management, card, treasury management, deposit services and fees, and then residential mortgage, which, and commercial mortgage, which isn't as large for us as some other players, but an important fee stream. You know, we feel good about all of our fee businesses. Again, they're all sizable. They all have great opportunity for growth, along the lines of what we were talking about. Capital markets, specifically, you know, has been on a little bit of a wild ride for us, for us, and you know this, Ebrahim, our largest component of our capital markets and advisory is our, M&A advisory shop, Harris Williams, which in the zero interest rate environment produced record, record levels.
Last year that fell off a bit.
Yep.
I would call it more sort of transitioning to these, as buyers and sellers of companies, which are the customers of Harris Williams, sort of transitioned to this higher rate environment. We saw some softness there in the first three quarters of 2023, a pickup in 2024, a nice pickup in 2024. So, you know, we've got a, we've got sort of a run rate there, that we're feeling good about. So capital markets, it's been on a little bit of a wild ride. We've got it up to 20% year-over-year, and, you know, we're tracking to it.
You are, okay.
And again, the rest of the fee businesses are all very good businesses. You know, the wealth management business, huge opportunity in these growth markets. We're continuing to bring in new inflows, which is really important. And, you know, that should continue despite whether the equity markets hold in or not.
Is the wealth management opportunity tied to the current PNC customers or are you, are you going beyond your?
It's expanded. Yeah, we're a large player. You know, if you go all the way back, well, if you go back all the way back to the early 2000s, I ran that business, prior to being in this job, in 2010. We are a larger player than you'd reckon or that you would think, you know, $300 billion in terms of assets under management, wide distribution, largely driven off of our legacy trust businesses, but it's expanded now into a contemporary wealth, from the, you know, affluent, mass affluent, high net worth and ultra high net worth, full complement of services, products, services. Generally, it is to PNC consumer clients, but there's an awful lot of PNC consumer clients that don't utilize our wealth management products.
And again, just to sort of tie that back to Mike and his new role, you know, that's a clear opportunity. So when you have, you know, 10 million+ consumer clients and 1 million of them using your wealth, you got 9 million people to talk to. And that's the primary focus, but it's not limited to that. You know, of course we compete like everybody else outside of that.
Got it. I guess moving to capital, so talk to us, I mean, I think you've talked about buybacks, just, I mean, M&A aside, just capital deployment priorities.
Yeah, so, you know, with capital, that was obviously a big subject in 2023 as well and it still is, particularly in the context of these new proposed rules.
Yep.
So, you know, last this time last year we were all waiting for the new rules to come out. There was a lot of concern that the new rules were going to increase our capital requirements dramatically. It turned out, for PNC not so much. You know, in terms of the numerator, obviously it's the inclusion of the AOCI, which is negative at the moment. And for PNC on a relative and absolute basis, that's a relatively small number that burns off faster than most. And that's important because these rules propose transition, a transition time. But then, you know, where more of the focus was on the RWA calculation and in our case it turned out that our RWAs increased, you know, about 4% from the prior sort of calculation requirements.
But there's a lot of fluidity going on as you know. There's been some recalibration. There's been some acknowledgment, I think, in the industry that there may be more than just minor recalibration. So, you know, we're watching that and taking a look at that. You know, the good news for us is we were never out of position in terms of our capital ratios, so we didn't need to go on a capital or RWA diet. In fact, we bought. That was an opportunity for us to buy, in the second half of last year, some of the Signature loans, because we had that flexibility. The good news for our model is that we generate more capital in our businesses than we can intelligently deploy.
Right.
So we have this capital, we have this ability to, you know, grow our capital levels, when we need to. So, you know all of that. We did last year suspend our share repurchases, for the better part of 2023. We started repurchasing again, late in the fourth quarter, at, you know, approximately $100 million or so. We said that we're probably going to do that and maybe a little bit better depending on market conditions, this quarter and we'll sort of take it as it goes. So it's important that we have a program in place. It's important that we recognize that we have capital flexibility regardless of what the ultimate rules are.
Right.
But still you want to be mindful of the rules in terms of what sort of the definitive lines are before you go more aggressive than that.
Do you have a sense, not to put you on the spot, in terms of when we get some visibility on the rules or the final rules, do we see that this year?
I thought you guys knew that better than we did, Ebrahim. I, you know, I don't know. I don't know any more than what we read.
Right.
You know, I think, you know, we're looking at sort of the mid part of this year at the earliest. But you know, I'm not in charge.
Yep.
Yeah.
Neither am I, so.
Well, it's good to get that out, yeah.
But in the other thing you mentioned, so you mentioned the portfolio purchase that you did last year.
Yeah.
Are there more of those? Like, is there, because obviously there are banks, as you mentioned, in order to be optimized?
Yeah, I think so. Yeah, I think so, are likely to occur. And, and like I said, even when we were talking about the acquisitions, whether it's a, you know, whether it's a, a standalone bank or a piece of a bank or something along those lines, we'll take a look at it.
Okay.
And again, if it makes sense to do it, we'll do it. And if it's, if it won't or it doesn't make sense, we won't do it. And that happens all the time.
This was asked earlier, but I wonder how Bill and you think about private credit. Like, do you see that as an opportunity where you can partner with private equity and do?
Yeah, yeah, it's a popular question.
Yep.
You know, I mean, the most meaningful dimension is, are we somehow or another displaced, in the needs of the borrowers? And the answer to that for PNC is no with our customer base, simply because, the bulk of the private credit players require a yield, that necessitates a higher risk than we're willing to take. We can, we can afford, so to speak, to take a lower yield, lower risk because more often than not it's part of a broader, broader relationship of services that in the aggregate justify the capital outlay. So that's sort of a natural barrier to entry, from the private credit side. You know, to the extent that the ecosystem that they rely on bank loans to fund their, their, you know, their, extensions of credit, there's some of that.
You know, there's servicing that's related, some part of that. Potentially, I suppose, if private credit wasn't available, those borrowers might need to conform to some sort of bank, conventional bank structure. So it could be a little bit there. I sort of liked, when you were talking about, about it earlier with Brian, you know, his view, which is, hey, it's, it's all good, just let's all play by the same rules.
Right.
And, to the extent that some of these private credit players are outside of the regulatory system and they're large players, you know, do you really want to give them a structural advantage around the rules that we all abide by? And the answer to that for the benefit of the overall economy is probably not.
Right.
Yeah.
One last one on capital. I think you're one of the few banks that still has a decent stake in Visa.
Yes, yep.
I think the vote went through, as my understanding.
Yes, yeah.
Just talk to us around how big that is and what's the sort of thought process.
Yeah, so we're finally at the end of this process that started with the distribution of B shares when Visa went public, you know, a long time ago. Where it stands is, you're right, we have a stake, which is about $1.5 billion, of B shares. I think most of you know, Visa, the Visa shareholders approved in January the ability to allow those shares to be monetized and convert to A shares. So that approval occurred. Where it stands right now is, Visa submitted their S-4 to the SEC for review, which is part of the process. The SEC has a certain amount of time to take a look at it.
If they, you know, if they look at it fast, we could be in a position where maybe we'd be monetizing that, which we will look to monetize. Maybe by the end of the first quarter, if it takes longer, it might be the beginning of the second quarter.
I see.
So we'll see. But we do have $1.5 billion. We will look to monetize that 50% in an orderly good way. And there'll, Visa will have some rules around that. And then the remaining half, you know, under the proposal or the approved approach allows for further monetization of that over the course of some time period.
Got it.
Yeah.
So at this point when you monetize, just, this is, too nitpicky, but when you monetize half of that, that's the only thing that you mark to market on the balance sheet?
Well, yeah, that's, that's the current thinking right now. You know, the accountants are looking at it because this is new, but the current thinking would be naturally it'd mark up the part that you could sell. The remaining stake, the accountants are still working on.
Understood. And you told me earlier you don't, you have, you generate more capital than you know what to do with.
Right, yeah, right.
So what are you going to do with this?
Well, it'll be more capital. I knew you were going to go there. So, so it'll be some more capital and allow us some more flexibility to be used, you know, in all the ways that, you'd think about.
I know we have a couple of minutes. Just wanted to open up the room to see if there are any questions in the audience. If there are any questions, raise your hands. Go ahead, Ravi.
Rob, you mentioned your desire to continue to increase scale. Something you've talked about.
Yeah.
Just curious if you believe that you could do a transaction like that today based on the current, you know, OCC and other regulatory guidance, or if you feel as though that's something that might require a change of administration?
Yeah, so did everybody hear that question?
Yep.
If you think it's a good question. Thanks for asking about it. You know, the short answer is, we think, should an opportunity arise for us of what I was talking about, we think that there would be a large degree of regulatory support under the current setup. In talking to the regulators, they would be supportive of what they would call a good merger. And a good merger means a competent acquirer, that meets all of the requirements in terms of that. So we were actually with the OCC last week and I asked Michael Hsu, I asked him point blank. I said, "Hey, you put out this, these were my words, not his, this no-brainer approval, which were pretty small." Those weren't the words he used, but he nodded his head.
And I said, "And some people thought maybe that meant that you're anti anything larger than that." And he said, straight up, "That's not what I said. Those are not my words." He said, "Everybody wants a green light or a red light, but we don't do it that way. We use a measuring stick. And if the measuring stick works, it's good. And if it doesn't, obviously we won't approve it." So, you know, I think with the right acquisition, and doing all the things like we did with BBVA, I think we'd be optimistic about that.
Just given what happened with one of the acquisitions with TD First Horizon last year, do you think it makes sellers a lot more apprehensive of putting their franchise at risk, waiting for 12 months to see whether or not the regulators approve the deal? Is that a factor or?
I don't know. All eyes will be on this, of course.
Right.
You know, in terms of saying that, so including ours. So, you know, we'll see, we'll see how it plays out.
Got it. Any other questions? If not, I have a last question for you, I think.
Sure.
Just speaking to investors, I mean, obviously your stock trades at a premium, deservedly.
Yeah.
Just talk to us in terms of, in your seat, the investment thesis, how you think about PNC.
Sure.
and the attractiveness of the investment proposition.
Yeah, I think, you know, a couple of things to think about. One is we're really well positioned in terms of our balance sheet and that played out through all the gyrations in terms of 2023. We're in the right position. We've got the right flexibility. We've got plenty of capital. We've got plenty of liquidity. There aren't any rules that are, you know, really in our way. And we could talk more about some of that recalibration, but there's nothing in our way and there's some things that could actually benefit us. So that's good. That's good to have. Not everybody has that. And then I think, you know, you just take a look in terms of the opportunity that we've got with these growth markets.
We've been very, very successful, very successful over a large number of years in terms of our model, our business approach in our legacy, you know, more mature markets. We've never operated that model in high growth markets like Texas, like Colorado, like the Southwest in terms of the United States. So the ability to do what we do, which isn't, you know, super fancy, it's big, but it's not super fancy. And the only thing that you change in terms of the variable is, some tailwinds in terms of the growth dynamics of where you're doing it, is substantial, particularly when you compound that over a number of years as you build out that franchise.
I think investors with these thresholds around $100 billion, $700 billion. Is $700 billion just talk about like preparedness of the bank, like how?
Yeah, I don't, that, that's not an issue.
Okay.
That used to be, you know, in terms of tailoring, you know, we're a category III bank, so they set a category II bank at the $700 billion. Are there any issues? And the biggest issue for us was if we had gotten to that point was the inclusion of AOCI into our capital ratio. So, we've told our board, category II came to us.
Right.
And then that sort of gets to the issue too in terms of this, what we were talking about, the regulatory tailoring diminishing.
Right. It's the opposite of Christmas coming early, I guess.
Yeah, right, yeah, right, yeah. That's right, Ebrahim.
All right. We are out of time on that note. Rob, thank you so much.
Very good. Hey, thank you. Great being with you this morning.
Thank you.
All right. Well done.