The PNC Financial Services Group, Inc. (NYSE: PNC) is about to bolster its capital to the highest levels in the company’s history. The bank has held a large position of more than 22% of BlackRock, Inc. (NYSE: BLK) for approximately 25 years, but now PNC plans to sell down its entire stake in BlackRock via a registered share offering and with some shares being repurchased directly by BlackRock itself.

This move is expected to add a substantial amount of capital to PNC’s balance sheet and should dampen any concerns that may have otherwise been considered while PNC’s shares sold off so much from its highs.

According to PNC’s release, the bank holding company owns 34.8 million common and Series B preferred shares which represent a 22.4% stake in BlackRock after the conversion. The underwriters will have an overallotment option to purchase additional shares and the buyback portion of the transaction has BlackRock agreeing to repurchase $1.1 billion of its stock from PNC.

As of March 31, 2020, BlackRock managed roughly $6.47 trillion in assets for investors worldwide.

Monday’s press release indicated that PNC will have sold its entire holdings in BlackRock, except for 500,000 shares which PNC will donate into the PNC Foundation, if the underwriters fully exercise their overallotment option if BlackRock uses the full amount indicated above in its repurchase.

A 22.4% stake in the $76.5 billion market cap of BlackRock would be worth close to $17.1 billion on a straight line basis without looking for exceptions or any other transaction/conversion issues (and outside of figuring out taxes due) that might be inside the SEC filings for its shares. PNC’s entire market cap was over $43 billion after close to a 3% drop in PNC’s share price on Monday.

The transaction has been approved by PNC’s Board of Directors. BlackRock’s press release indicated that its joint book-running managers would be Morgan Stanley, Citi and Evercore ISI.

At $102.12, PNC has a 52-week range of $79.41 to $161.79 and a Refinitiv consensus analyst price target of $110.63.

PNC’s earnings report from April showed a March-end book value per common share of $106.70, up from a book value of $104.59 per common at the end of 2019 and up from $98.47 a year earlier. PNC, a long-term favorite of BofA Securities, also claimed to have strong capital and liquidity positions and it temporarily suspended share buybacks back in mid-March while the market was tanking into the COVID-19 recession.

PNC had also put its Basel III common equity Tier 1 capital ratio at roughly 9.4% as of March 31, down from 9.5% at the end of 2019. PNC also indicated with the first quarter earnings report that its liquidity coverage ratio exceeded the regulatory minimum requirement for both PNC and PNC Bank, N.A. It has been expected that book value levels will again matter to shareholders in the banking sector. Other previously disclosed levels indicated as of March 31, 2020 were shown as follows (compared to 2019 year-end):

• Deposits at March 31, 2020 increased $16.7 billion (6%) to $305.2 billion as higher commercial deposits near quarter end reflected liquidity maintained by customers due to the economic impact of COVID-19.
• Average deposits rose by $2.0 billion (15) to $289.7 billion due to growth in consumer deposits partially offset by seasonal declines in commercial deposits.
• Investment securities rose by $3.7 billion (4%) to $90.5 billion.
• Average investment securities increased by $900 million (1%) to $84.4 billion.
• Balances held with the Federal Reserve decreased by $3.6 billion to $19.6 billion; and average balances of $17.3 billion decreased by $5.7 billion.

William S. Demchak, PNC’s Chairman, President and Chief Executive Officer, said of the move:

BlackRock’s long track record of strong performance and growth has created significant value since PNC acquired our stake in the company. As good stewards of shareholder capital, we have consistently reviewed options to unlock the value of our investment. We feel the time is now right to do just that, realizing a substantial return on our investment, significantly enhancing our already strong balance sheet and liquidity, and leaving PNC very well-positioned to take advantage of potential investment opportunities that history has shown can arise in disrupted markets.

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