PNC PNC Financial Services Group Inc

By Dawn Lim and Orla McCaffrey 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 12, 2020).

BlackRock Inc.'s largest shareholder, PNC Financial Services Group Inc., said it is exiting its stake in the firm, ending a lucrative yearslong wager on the world's largest money manager.

PNC Financial Services Group Inc. currently owns a roughly 22% stake in BlackRock.

PNC bought BlackRock in 1995 for roughly $240 million, but its stake shrank over the years. PNC got a steady stream of fees and profits from the asset manager's robust growth in the last decade as BlackRock sucked up a growing share of money flowing into index and exchange-traded funds.

The stake has yielded handsomely.

PNC's shares in BlackRock are worth roughly $17 billion today. Based on that paper valuation alone----and not counting the rich stream of dividends it has reaped----that translates to a roughly 70-fold gain for PNC.

PNC could start selling its stake in a matter of days. BlackRock said it plans to repurchase some of the shares.

PNC's exit ends a chapter in which BlackRock was owned by a several banks and opens a new era. The firm is no longer beholden to other bank backers and has itself dislodged some banks to become a central power on Wall Street in its own right.

The deal also releases some of the regulatory burdens that come with large-bank ownership.

BlackRock won't face the same restrictions it has faced in casting shareholder votes in financial companies and certain other industries. It also won't face the same regulatory burdens on balance-sheet holdings of private-equity funds and other kinds of alternative investments.

The $6.5 trillion asset manager's rise is emblematic of how asset managers have gained ground on the biggest Wall Street banks. BlackRock's reach today spans markets from exchange-traded funds to fixed income to private equity. It controls shareholder votes on behalf of the funds it runs.

PNC's stake shrank over the years as banks such as the former Merrill Lynch and British bank Barclays PLC made investments in the firm. Even as those other banks cut their stakes in asset-management businesses to shed risks after the 2008 financial crisis, PNC remained an investor.

"BlackRock's long track record of strong performance and growth has created significant value since PNC acquired our stake in the company," PNC Chief Executive William Demchak said in a press release.

"As good stewards of shareholder capital, we have consistently reviewed options to unlock the value of our investment," he added. "We feel the time is now right to do just that."

Mr. Demchak wants spare cash on hand during a crisis triggered by the coronavirus pandemic. He believes it could give him flexibility to buy other businesses at discounted prices, among other advantages, said a person briefed on the matter.

The sale will boost the $445 billion asset bank's capital levels and enhance the bank's capacity for credit losses, analysts said. PNC increased its loan- loss reserves by $1.3 billion in the first quarter.

PNC, one of the largest regional banks in the U.S., holds exposure to hard-hit industries including oil and gas and hospitality. The bank said this month that it is closely monitoring its oil and gas portfolio, about 2% of its total loan book, given the pressures on the energy industry.

"It will be easier for them to fight the credit fire, which is very much a real issue for banks," said Chris Marinac, director of research at Janney Montgomery Scott LLC.

Selling the stake in BlackRock also reduces some regulatory costs for PNC.

The move comes after regional banks reported significant losses in the first quarter and set aside billions of dollars for expected credit losses. Near-zero interest rates have crimped banks' lending profits. And a negative economic outlook means loan growth will likely suffer.

Larger regional banks including PNC have performed better in part thanks to diverse revenue streams. The noninterest income delivered by the BlackRock business segment has padded the banks' earnings in past challenging lending environments.

Write to Dawn Lim at dawn.lim@wsj.com and Orla McCaffrey at orla.mccaffrey@wsj.com

(END) Dow Jones Newswires

May 12, 2020 02:47 ET (06:47 GMT)

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