Wall Street Responds Bullishly to PNC's Purchase of Signature Bank Portfolio

Investors are showing confidence in PNC Financial Services Group Inc. as the bank's recent purchase of a portfolio from the former Signature Bank attracts fresh capital. According to data provider BondCliQ Media Services, PNC's corporate bonds saw an influx of approximately $22.5 million later in the day after news broke that the bank's fourth-quarter earnings would benefit from the portfolio deal. While some money initially flowed out of PNC bonds, overall demand for the debt increased as the trading session progressed.

However, PNC's stock experienced a minor decline of 0.2% during the day, underperforming other banks in the sector due to investors' negative reaction to a spike in bond yields.

Despite these market conditions, investors demonstrated confidence in PNC bonds on Tuesday. Nevertheless, the price difference, or spread, between Treasury notes and PNC bonds widened for three of its bonds during the trading week ending on Tuesday. As shown in the chart below, the blue and red lines indicate the spread between PNC bonds and five-year Treasury notes, while the orange line represents their spread against 10-year Treasuries.

When spreads widen, it indicates that investors are less inclined to invest in corporate debt compared to Treasurys. Consequently, yields on corporate bonds rise relative to government-issued bonds.

PNC Draws in Investor Dollars with Corporate Debt Despite Market Trends

PNC, a leading financial institution, has managed to attract more investor dollars towards its corporate debt, despite the prevailing trend of larger spreads, lower bond prices, and higher yields on the debt. This positive response indicates a strong confidence in PNC's offerings.

The recent action in the corporate bond market came after PNC announced its acquisition of a $16.6 billion portfolio of Signature Bridge Bank NA commitment facilities from the Federal Insurance Deposit Corp. Although the exact financial details were not disclosed, the deal was successfully closed on Monday.

PNC expects this acquisition to have a significant impact on its earnings, contributing approximately 10 cents per share to its fourth-quarter results. The bank reassures that this addition will not materially affect its total assets, capital ratios, or tangible book value per share.

Despite some market volatility, PNC's stock has experienced a decline of 24% in 2023. In contrast, the S&P 500 has gained 10.8% during the same period.

Citi analyst Keith Horwitz has taken note of the ex-Signature Bank deal and adjusted his earnings per share estimates accordingly. He now predicts that PNC's earnings per share for 2024 will amount to $13.55, surpassing the FactSet consensus of $12.25 per share. Additionally, he raised his 2025 earnings projection to $16.40 a share. Consequently, Horwitz maintains a buy rating on PNC and sets a target price of $145 per share.

This development in PNC's corporate debt market presents an attractive entry point for investors looking to capitalize on the bank's potential growth.

Also read: Bank Stocks Show Mixed Results in Q3 as Citi Analyst Highlights an 'Attractive Entry Point' for the Sector