One bank’s crisis is another bank’s opportunity. No financial institution is immune to the credit crisis, but the truth is that strong banks will get stronger relative to their peers, and that will be the enduring effect once we emerge from this morass. That’s clearly the market’s view of PNC’s
This is a great way for PNC to take advantage of the Treasury’s recapitalization package to bolster its franchise (PNC will sell $7.7 billion in preferred stock and warrants to the government). In acquiring National City, PNC will become the country’s fifth largest bank by deposits with a combined Tier 1 capital ratio of about 10% -- those are solid numbers.
The acquisition is the latest in a series of high profile deals sparked by the credit crisis, which include JPMorgan Chase
The deal pipeline is going to get stuffed
It surely won’t be the last, though -- we should expect significant consolidation in the banking sector. In the first half of this year, 129 FDIC-insured commercial banks were absorbed by mergers, which is actually lower than the number for the same period last year. However, I expect the pace has picked up since the end of June, and I think we will finish the year ahead of 2007.
The crisis should egg on the pace of deal activity: for one, the percentage of unprofitable institutions -- at a time when capital is at a premium -- has almost doubled from a year ago to 15.9%.
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Alex Dumortier, CFA wishes he could get a loan from the Treasury to buy stocks right now. He has a beneficial interest in Wells Fargo, but not in any of the other companies mentioned in this article. JPMorgan Chase is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.