PNC seeks ‘bulletproof’ balance sheet; hard-hit bank stocks rebound
PNC CEO William Demchak said the decision earlier this week to sell its $17 billion stake in BlackRock “was prompted by the bank’s increasing fears over the U.S. economy” and that the proceeds would provide it with a “bulletproof’ balance sheet to deal with an extreme crisis or a war chest to buy distressed assets in a more moderate recession.”
“We’re in this economy where everybody bases their models predicting the future on the past and of course we’ve never been in a situation where [we] effectively have been forced to shut down on the economy with this much fiscal stimulus,” he told the FT. “I can’t stress the importance of being able to play offense into that environment. If you’re left in a situation where you’re defending, where you’re shrinking your balance sheet, where you’re worried about your capital, where you’re continually cajoling shareholders, or clients to stick with you, you’re not focused on growing.”
“A surge in shares of hard-hit U.S. banks” led a strong rally in U.S. stocks Thursday, with the S&P 500 gaining nearly 1.2% after falling by about the same amount earlier in the day. “Shares in Wells Fargo and Capital One, two companies in the financial sector that had suffered heavy losses this year, rose more than 6%. Other banks, including JPMorgan Chase and Bank of America, also rose more than 3%.”
Before Thursday’s rebound, “U.S. banks had become the most unloved sector in the stock market rally, as low interest rates and souring loans reflect the economic pain caused by coronavirus. The KBW Bank Index is down about 45% this year, wiping a combined $795 billion in equity value from its 24 constituents, which include JPMorgan Chase, Bank of America, Citigroup and Wells Fargo. The benchmark has trailed the wider stock market by 14 percentage points since the rebound began on March 23.”
“Investors are trying to get their arms around how bad this crisis can be, in terms of asset quality,” said Scott Siefers of Piper Sandler, while questioning why banks have so underperformed the rest of the market. “How can you be worried about banks, but not their customers?” he said.
U.K. digital bank Monzo is planning “to raise between ￡70 million and ￡80 million to see it through the coronavirus disruption. This would secure its cash position into the second half of 2021 when it will have moved closer to profitability.” But the move would value the company at only ￡1.25 billion, a nearly 40% discount to the more than ￡2 billion valuation at its last funding round a year ago.
“The sharp drop highlights how the pandemic is challenging unlisted tech valuations as growth slows and venture capital funds become more cautious about backing lossmaking companies.”
The Aspen Institute think tank said it would return $8 million in Paycheck Protection Program loan funds following a meeting of its board of trustees. “The decision marked an about-face for the nonprofit organization, which had argued Wednesday that the funds were necessary to keep its 430-person staff on payroll despite a $115 million endowment and several billionaires among its trustees.”
“We believe that our application, which was made in the first week of the PPP, was consistent with the goals of the program. Upon listening to our communities and further reflection, we have made the decision to return the loan,” a spokeswoman said.
Goldman is buying
Goldman Sachs plans to buy Folio Financial, a boutique wealth management custodian and technology company, for an undisclosed sum, Reuters reported. “Folio would be the second wealth management company Goldman has acquired in two years, following United Capital in 2019, and it fulfills Chief Executive David Solomon’s goals to build out the bank’s other businesses.”
“Based in McLean, Virginia, Folio has roughly 160 employees and $11 billion in assets under custody for registered investment advisers.”
JPMorgan Chase said credit card spending among some of its American customers plunged by 40% during March and early April compared to the same period a year earlier. “Spending on non-essential goods and services, like retail, restaurants, and entertainment, fell sharply across income brackets accounting for nearly all of the drop in spending during that period, the JP Morgan Chase Institute said. The overall fall in spending was eight times larger than the average drop in household credit card spending in the first month of unemployment during regular times,” the bank said.