NEW YORK - There is likely no heated rivalry between the 5th largest bank in the United States, U.S. Bancorp and the 6th largest PNC Financial. However the investors of the two companies may be the ones fighting to justify its bank's valuation. Each of these banks hold a commanding lead over the next group of banks. Similarly the four largest banks: BAC, JPM, C and WFC are so much larger than PNC and USB that these two banks are in a class of there own.
To begin our analysis lets examine the banks for size. USB has $280 billion of assets to $260 billion for PNC. USB has 3,000 banking branches compared to 2500 for PNC while PNC has over 1000 more ATM's at 6,300 to 5,300. USB has 61,000 employees to 56,000 of PNC. In terms of deposits USB has $183 billion compared to $178 billion of PNC. The banks appear to be quite similar in size with USB holding a slight edge.
Both banks were credited during the recession as being two of the safest banks. USB was one of the first banks to pay back TARP on July 15, 2009 while PNC paid back the government on February 2, 2010. The longer time used for PNC would have had to do with their transformative acquisition of National City Corporation who in 2008 was the 6th largest bank in the U.S. PNC was chosen as the bank of the year in 2010 as it gained recognition for its strong brand.
U.S. Bancorp has shown in the past that it has the ability to earn over $4 billion in profit a year while PNC has stated that it will be its future goal to get to this amount. Both companies have similar earnings reports of late with PNC having the slight edge. PNC has roughly $3 billion more in tangible equity than USB at $21 billion to USB's 18 billion. USB has a higher focus on consumer lending while PNC with its NCC acquisition has more of a focus on transactions for corporate clients. The transition of NCC has gone smoothly and has successfully converted the 7th largest bank in the country into their bank. "PNC successfully completed the National City conversion of 16 million accounts, 6 million customers and 1,300 branches in nine states in one of the largest branch conversions in U.S. banking history. The company achieved acquisition cost savings of $1.6 billion on an annualized basis in the second quarter of 2010, well ahead of the original target amount and schedule, and established a new goal of $1.8 billion by the end of 2010. "
PNC has higher capital ratios than USB. PNC has a 9.6, Tier 1 common ratio compared to a 7.6% ratio for USB. PNC's ratio will be even higher as it divests some of its stake in BlackRock. As the capital standards increase for banks worldwide the banks with more capital can pay more dividends. Usually banks with higher ratio's are viewed as being safer though this is not always the case.
USB is currently valued at $50 billion to $32 billion of PNC.
Something will have to give with the PNC, USB valuation. USB may not be overvalued but PNC will need to move in line in the future. Often investors trade a stock within a historical average despite changing metrics. PNC appears to be trading just below its historical range while USB is trading more-so below its historical range. Historical averages can be barriers for a quickly advancing stock. Opportune investors will cash in on the mispricing. A stock can take years, months or days to reach its correct value. But the longer the mispricing the longer an investor has to find the opportunity.
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