PNC Financial Services Group Inc at Goldman Sachs U.S. Financial Services Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : A lot to talk about, but let's just start off with your view of the macroeconomic backdrop. So a couple of things. The first is, what have you seen in the fourth quarter from a spending standpoint? Has anything changed? And then how are you thinking about the economic trajectory next year, both from a growth, but also from an interest rate perspective, just given the fact that we will have a new head of the Fed next year.

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. And then this whole K-shaped economy narrative. I mean how do you see that tracking heading into next year? Do you think it's going to continue to diverge? Or do you think it starts to narrow at some level?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : More on the consumer side.

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. So before we talk about some of your strategic priorities, maybe you can give us an update on the fourth quarter, how are things tracking? Has anything changed on net interest income fees or expenses since you last spoke?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. But the change in fees is entirely capital markets? Or are there other?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. So let's talk about strategic priorities. Look, how have they shifted over the course of the year. I mean it feels like a lot has changed relative to a year ago, but from your perspective, how the strategic priorities changed, if at all? And look, how has -- the way that you spent your time evolved over the course of this year?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. So let's talk a little bit about the momentum. And maybe we can start off with loan growth and your expectations around that. So you had very good growth in C&I in Q3. Maybe you could touch on what's driving that, maybe talk about the loan growth dynamics that you've seen in the fourth quarter. And then I think one of the other things you've talked about is commercial real estate loan growth inflecting positively next year. Is that still your expectation? And how much of a tailwind could that be when we think about the loan growth picture for PNC overall?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : The other thing I wanted to ask about is the OCC has just changed the guidance on levered lending. I mean how significant is that? And do you need the Fed to move as well?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : So at the margin, it will make the banking industry, you think, more competitive relative to some of the --

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Maybe can you give an example of something now that you can do that you --

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. And then on the other side of the balance sheet, deposit growth, again, I think we saw a step-up in commercial deposit growth in Q3. What have you seen so far this quarter, how a deposit beta is tracking post the more recent rate cut? And then just more broadly, are you seeing any change in the competitive environment?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. So let's take these pieces and talk about the net interest income outlook for next year. And I think you previously talked about $1 billion of growth in NII, you talked about hitting the 3% net interest margin at some point in '26. Does that still hold? And then I guess, if we do see better loan growth next year, is there an upside case to the $1 billion number that you predicted?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : So maybe it's a good point to talk about First Bank in terms of how we should think about that.

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. That's a pretty good picture. So maybe we can talk about efficiency improvements as part of that outlook. You've done a very, very good job, I think, in terms of the continuous improvement program and reduction in operational roles over the last few years. Can you talk a little bit about where we've got to in terms of process optimization for the firm, where you see the greatest opportunities? And then, look, the other thing I'm very interested in hearing about is that there has obviously been a change in both the regulatory and the supervisory environment to a degree. Is that a tailwind in any way as you think about the ability to drive efficiency improvements from here?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : I mean, so a couple of things. I mean, first, can you just touch on some of the bigger use cases for AI? And maybe have those -- how have those changed? And then look, secondly, how should we think about these efficiency improvements? Because if you kind of go back and look at the banking industry over a long period of time, a lot of these efficiency improvements get passed on to the customer in terms of just better pricing. Do you think that's going to be different going forward as we think about how it changes the return profile of the industry from here?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Yes. So let's talk about some of the growth initiatives. You obviously talked about the 300 branches. A few questions. First, why 300? Like why is that the right number? How did you kind of come up with that? Second, you're both building branches, but you're also buying branches, where you're buying banks effectively, you bought a bank. Talk about the economics of new branches versus building branches. And then if we put this all together, you've talked about the 7% market share that represents critical mass. Is that still the right number? And look, how are you tracking towards that in some of these markets where you've obviously got --

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. So we're going to talk about capital in a minute. But before we do that, maybe we can talk a little bit about the outlook for some of the fee lines. You talked about the fourth quarter coming in better on capital markets, there seems to be tremendous optimism around the outlook for capital markets --

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Next year. Obviously, your franchise is slightly different. So maybe you can just talk a little bit about your expectations. And have they changed since you last spoke in terms of the opportunity set in capital markets?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. So let's talk about capital. And I know there's a lot of different moving pieces around what's going to happen to regulatory capital reform. But how is your thinking about steady-state capital requirements changed? And maybe if you can just help us think through if regulatory capital is no longer the backdrop, and it becomes either internal stress testing or rating agencies. What do you think is the right level of capital to run PNC at? If the decision is up to you versus some regulatory --

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : And just on that, Moody's is going to give you credit for the capital relief you get from Basel III endgame?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. Okay. So before we --

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : So maybe we can -- before we talk about credit, let's talk about uses of the excess capital. And I guess there's a couple of questions. I mean it does sound like you are thinking about increasing the cadence of the buyback. Is that for this quarter? Is that for next year? But it would also be just helpful to get an update in terms of how you're thinking about deployment of excess in terms of both growth in the business, capital returns, but also just organic.

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Let me ask you a couple of questions. I mean, the first is, can you just remind us of the financial hurdles, any acquisition needs to meet for you to consider? And then, look, secondly, I do think there is this view that's been emerging over the course of this year that we are going to see this acceleration in regional bank consolidation next year. I mean do you buy into that? And then the third thing is, look, is there a combination out there that would concern you from a competitive standpoint?

Question: Richard Ramsden - Goldman Sachs Group Inc - Analyst : Okay. So we've got a minute left. And you did touch on this, but I do want to ask this specifically, which is look, as you talked about, your operational trends this year have actually been very good. On our numbers, I think we have you growing PPNR kind of low double digit, maybe even higher over the course of this year. Other than the M&A piece, what do you think people are missing when it comes to the investment case of PNC over the next --