There is a cyclical element to fraud, right? Because in good times people will look the other way.
And I don't think it's cyclical. I think it's always there. I just think, you know, who said it, you know, when the water goes out you can figure out who's swimming nude.
I think it was Buffett. Buffett. Yeah. Yeah.
Well, Galbraith, however, talked about the bezzle. Right. The propensity of flimflam and scams to exist during the good times, and people just like, and that accumulates and accumulates.
But that could be. We've had like 20 years, as you said, like we haven't had a credit. I mean, it's almost 20 years since the financial crisis now.
Yeah. Finance always finds its way, finds a way to blow itself up. I mean, it's, you know, it's not an opinion. And just look at history. I think what happens is you get, you know, we find good things and then you ride them and you. Yeah. In every instance where something's gone wrong, you just keep pushing on something till you take it over the edge.
Right. Finance is an industry where historically you could make a lot of money at it. Right? You're playing with other people's money, you know, pennies and nickels coming off of other people's money. I'm just going to keep pushing. I'm going to keep pushing and keep pushing. When it finally falls, it falls hard.
Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
So Tracy, one of the motifs, I guess, of some of our recent... Motif is a good word. It's a good word, isn't it? Thank you. One of the motifs of some of our recent conversations, and also, I guess, one of the megatrends of our time, is this idea of just like scale is a competitive advantage. Size returns to size, returns to scale. The ability of someone to, like, pick up a phone and say, I need a lot of money right now. And the advantage that accrues to financial players, we see it across a lot of sectors. But it really stands out a lot in our finance conversations. It feels good to be big in business, right? Like once you get big, you have all this competitive advantage that allows you to get bigger. The place where this is most noticeable, I would argue, and it's been this way for a while, is the banking industry, right? Like the long-run trend among U.S. banks is the big get bigger. And we've all seen those charts of like all the little banks that compose Bank of America or JPMorgan.
I do too. And that's the direction the industry seems to be heading, right?
Right. It's so interesting to me to like to think about, like, these are an analog to tech because it's the same in tech, right? If you look at big tech and we talk about the Mag Seven, etc., they've really outperformed middle tech or small tech. It is truly incredible. And we have intuitive reasons for understanding of that, network effects lock and so forth. And it's so fascinating that some of our story that we tell must be a little bit insufficient, because we see the same story replicated as we're talking about, with banks. And with banks, it seems to be a couple of fold, as like one is balance sheet capacity, right? And the ability to do big deals and so forth. And then, of course, there's the other thing, which is just like the sort of the menu of services that you can offer, right? If you're a big bank.
Right. And also just the fact that you have, well, balance sheet, you have a lot of money. So if a juicy deal comes up, you can deploy it quite quickly and you get like first dibs on issuance, which has been good in the recent credit market. So we haven't done like a ton of pure banking episodes, or we've done some. But, you know, we did the most probably right in the wake of Silicon Valley Bank, obviously. And we talked about like the challenges of some of the community banks or the sort of smaller regional banks, etc. And then we know like the huge scale of like the JPMorgans of the world, but also like what about the banks? And just sort of like some JPMorgan scale, not super regionals, I believe they're called.
Super regionals. Interesting perspectives of their own.
And so, and I've always said I love talking to bankers, people who understand how banking works, just like they're, I think they're usually at some of our most interesting guests. Have you looked at the KBW Bank Index, by the way?
Not today, actually, not in a few days. Or maybe not a few days. Yeah. What has it been doing?
It's up quite a lot. In fact, I think over the past 12 months it's outperformed the S&P 500. So that kind of tells you how people feel about banks and bank regulation.
Absolutely. Right. One of the things when Trump won was the sort of like the deregulation trade. And that was one element. And arguably I would say in finance, by and large, though, 10% credit card cash does not scream deregulation.
I would say that's one of the areas in which the expectations of Wall Street have actually been met, by and large, by this administration. Anyway, I'm very excited to say we really do have the perfect guest to talk about the banking world in 2026. We're going to be speaking with Bill Demchak, CEO of PNC Financial, which is the sixth biggest bank in the country, I guess a super regional. So, Bill, thank you so much for coming on Odd Lots.
It's great to be here, but I'm going to correct you. Oh, we're a national bank.
National bank. Yeah. Why did I say super regional? Didn't. Were you once that?
You know, because we have the mega banks and people don't know what to call somebody like us, but yeah.
I always thought super regional was just like that category below the mega. But I mean, a regional bank is a bank that operates in a region.
Okay, we're across the country in the largest MSAs. We're in every state. So we're just, you know, one sixth the size of a JPMorgan. Got it. But we're still a national bank.
Excellent. Well, since we're just in the center of the correcting the record phase of the conversation, I'm certainly familiar with the PNC brand. You see it on things elsewhere, probably like a stadium somewhere or some other stadium somewhere.
We have PNC Park for the Pirates, PNC Park.
So there you go. But why don't you just give us the big overview? Like, what is PNC Financial?
We are a traditional bank. We used to call it Main Street Bank. Maybe that fits. Maybe it doesn't. But, you know, we help people save. We lend money, we do investments, we move money through payments. We're a bank that aspires to be, you know, coast to coast with a retail presence, as retail share consolidates in the US. You know, our sweet spot is larger middle market, smaller large corporate. But of course, we do commercial and business banking. We're active in the capital markets across basically every product, but new equity issuance. But more of a traditional bank. So when you talk about, you were talking about scale and your initial thing at JPMorgan, they've got to be in 50 countries. You know, they're in multiple lines of business beyond traditional banking. We have scale in what we want to do. So there's scale in the things you choose to attack, versus scale just measuring balance sheet size.
Got it. You have been growing, though. You made an acquisition recently. First Bank. Is the ambition to be, you know, as big as some of the G-SIBs, like the national giants, let's say?
The ambition isn't about size. The ambition is about being relevant. So one of the things going on backdrop to the US market in particular is there has been consolidation in retail share in banking, you know, ever since they got rid of interstate banking laws. That continues apace with the mega banks largely winning at the expense of the very small banks. And so at some point in the not too distant future, I suspect that there's going to be five or six players who control retail in the US.
And our aspiration, and we're on pace to do it, and we think we can do it, just to be one of those five or six banks. What size that leads to, I don't care. You just need to be relevant to consumers everywhere in the country. And you shouldn't be disadvantaged because you don't have presence in a particular market.
How would you articulate why the really big banks continue to win a share of the retail market? I could come up with some answer. But what's the real, how would you describe it?
It's ubiquitous market presence. You know, once you get over 7% branch density in a particular market, you tend to outperform, under the assumption you have an okay reputation and decent products. You know, you don't have to have the best, but you have to have the menu of all the digital applications, digital signature branches in the right place, you know, electronic transfer, all the things you come to expect from the bank. You guys probably bank at, you get there, and you grow. And if you think about that definition, there's only three or four banks today. Actually only two that fit that definition. JPMorgan and B of A. The Wells, you know, has the potential, you know, now that they've gotten rid of the asset cap and so forth to continue to grow. And then you have some aspirants who'd like to get in. We're clearly one of those and one of the people who's been after this game probably longer than most.
Just so what was the metric that you cited? 7% branch density. What is the... Yeah.
So, by the way, we use 7%. Other banks will talk about 8%, but it's somewhere around there. You get to a place where if you have presence in a market, 7 or 8% of the share of just physical presence with decent products, you control a disproportionate share of the actual deposits and economics coming out of that market.
So I'm actually surprised to hear that because the story, you know, that's dominated since the financial crisis has basically been that physical branches don't matter that much.
Yeah. So you've seen across the U.S., you know, net closures of branches is off the charts relative to new builds. But what you see behind the scenes is somebody like PNC, where we are, if you think about our very dense markets where we've been for 165 years, we're thinning those branches because you don't need as much. But we're building aggressively in Houston and Dallas and Miami. We were building in Denver until we bought First Bank. So going to all these growing markets where the population's moving.
Man, it just occurred to me, I already, after we do this episode, I want to follow up and like do an interview with, like, whoever your main person doing site selection is, because we've done episodes on like, oh, we have a drive-through site selection, grocery store site selection.
We have a great team we're building. But by the way, you know, we've announced we're building 300 branches in these new markets. And as an aside, once we knock 100 off, we'll add another 100. So it's going to keep going. We're probably 1,000 short of where we ultimately want to be, but we don't have to be there tomorrow. But just building 100 branches a year is a massive exercise on site selection.
You're a construction company.
Yes. I mean, exactly right. So you need to pick the right location. You need to choose whether you're going to do a drive-through or you're going to be at the end of some shopping, something where you're kind of an end add-on to a new development. The physical, you know, we have preset designs so we know what we're building, but you still need a contractor, you need somebody running at the physical plant that you move into the branch. We have pods now. New branch opens. Truck with a pod shows up and everything that that branch needs to run from computers to paper to pens is in a pod. Just deliver it right into the branch, which is what we're going to do. And we do the First Bank conversion, as an aside.
That's really interesting. Yeah. Let's talk about bank regulation because I think this is fun.
This is part of the consolidation story, I think, is that even though post-financial crisis there was more focus on the significant banks, the G-SIBs, at the same time, those G-SIBs seem to have benefited from some of the regulation. Yeah. Is that how you would characterize it?
I don't know that they benefited from regulation. They had to carry extra capital. They clearly, you know, in times of crisis, have done better than the broad swath of smaller banks, as we saw with Silicon Valley and some others. But they were sort of walled off from competitors. So, you know, I've talked for years about just the need to be able to compete. Some of that competition comes from M&A. Some of it just needs to, you know, the ability to do certain activities in an environment where it's easier to do that. And I think practically that's probably true. Although I would tell you, I think we could have done large deals had we chosen to back during the Biden administration. I think people tend, like one of those sound bites that comes out of regulators is good deals are okay, bad deals aren't. But they won't tell you what a bad deal is. But a good deal is typically when you have one bank, one good bank, somebody in charge. Yeah, you have technology that can actually absorb the other bank. And you can protect consumers and so on and so forth. Those could have gotten done in the last administration.
That's interesting. Well, let's talk more about your philosophy of M&A because, so your stock has done very well. But it has for a while, especially in the last year up until recently, had been underperforming. Yeah. Some of the other banks. And you're like, quote, is like, everyone thinks we're going to do something like, I don't know, an exact quote, but it's like something. Why does it for the... Whole world's betting I'm stupid. Yeah, right. But so like, but then how do you grow? So. Okay, all the market that I want to pay off the stock because they think that you're going to do. This is that, this isn't complex. We'll just start with the basics. All right.
Last year we outperformed, I think, everybody, including JPMorgan, in top-line revenue growth and EPS. People in our growth. People, you know. Sorry. You think I know pre-provision net revenue. Okay. Yeah. Fantastic year. We set records in new client acquisition, revenue growth, expense control, great new tech roll and stuff that we underperformed. Part of the backdrop of that was the mega banks outperformed as people correctly thought regulation was going to drop and they could return more capital than they historically had. So take that bucket. They're doing great because they have all this capital and they're free to do whatever they want to. Smaller banks went up in value because, you know, people like Bill Demchak with a big mouth said there's going to be consolidation. So everybody's going to buy them. So they go up in value. And because we are a likely acquirer, given our historical performance and being good at integration, we get crushed.
Did you get penalized from the perception of a more liberal M&A?
