Wednesday, April 24, 2019

A U.S. Bancorp - PNC Financial Tie-Up Could Be A Win-Win

Speculating on M&A is a tried and true way of passing the time between major news releases, and it’s overwhelmingly just a theoretical exercise, as the number of potential deals always dwarfs the number of deals done. That said, a recent turn toward mergers of equals in the banking space, including the large proposed tie-up of BB&T (BBT) and SunTrust (STI), adds a new element to the story.

Although I don’t think you can count it as any sort of “base case”, and both banks have expressed their disinterest in large-scale whole bank transactions, I believe a merger of equals (or near-equals) between U.S. Bancorp (USB) and PNC Financial (PNC) could not only be very interesting from an EPS and TBV accretion point of view, but also from the perspective of creating a truly national bank with strong positions in commercial and retail lending, payments, wealth management, and other fee-generating businesses.

I want to emphasize again that I’m not expecting such a transaction, and I do not recommending buying either U.S. Bancorp or PNC on the basis of M&A potential. Still, these are two high-quality banks traded below my estimates of fair value as is, and a transaction could create value for both shareholder groups.

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A U.S. Bancorp - PNC Financial Tie-Up Could Be A Win-Win

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