Jon Winick Feature in S&P Global
With Pittsburgh expansion, BofA will face hometown powerhouse
With its plan to open what it calls full-service financial centers in Pittsburgh, Bank of America Corp. will become the first of the U.S. megabanks with retail operations in the Steel City.
While BofA’s sheer size — nearly $2.3 trillion in assets — and brand recognition give it a fighting chance anywhere, analysts said, the Charlotte, N.C.-based banking giant could face an uphill climb in western Pennsylvania’s largest market.
Pittsburgh is the largest American city by deposits where none of the four biggest American banking companies — JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. are the others — currently have branches. While specific reasons may vary by each of those companies, one universally cited roadblock in Pittsburgh is the dominance of local powerhouse PNC Financial Services Group Inc.
The regional lender, the sixth-largest commercial bank in the U.S., held more than 40% of deposits in Pittsburgh in 2017, according to S&P Global Market Intelligence data. Its market share in the city is more than three times that of any of its competitors.
PNC has for years held prominent sway over Pittsburgh, with long-established community and smaller regional banks often filling in the gaps that the market’s largest bank does not control, Morningstar analyst Eric Compton said. That makes it difficult for other large banks to move in and quickly build up the substantial double-digit market share that national lenders often covet to justify a long-term retail presence in a major market.
“When you are PNC and you are the biggest player in your home market for what seems like forever, you have so many customer relationships built up over a long time, and it’s tough for anyone to try to break in and lure away those customers in meaningful numbers,” Compton, who covers PNC, said in an interview.
BofA said in January that it planned to open three locations in Pittsburgh, offering a full range of retail services. It will begin opening the new locations late this year. The new branches would also serve as offices to meet with existing and new BofA Merrill Lynch business banking and wealth management clients in the market. Though the bank is in the early development stages of its Pittsburgh growth strategy, BofA did say it plans to add more locations and ATMs over the next few years, and that it is confident in its ability to expand across several business lines in the market.
“We are very confident about deploying our vast resources here,” said Brian Ludwick, BofA’s Pittsburgh market president, in an interview.
PNC declined to comment on BofA’s retail arrival in Pittsburgh. But Louis Cestello, the PNC regional president responsible for Pittsburgh, noted to S&P Global Market Intelligence that the bank established its hometown leadership position by “building relationships with our customers and communities over many years.”
Observers of PNC said the bank is likely to respond aggressively to any competitive pressures imposed by BofA.
BofA “will have to go in and operate really, really well on the ground and try to gradually build up business,” Compton said. “But PNC is not going to just sit back and watch that happen. So success for [BofA] is not a foregone conclusion. Others have tried but come up short.”
Fifth Third Bancorp, for example, tried to establish but eventually gave up on maintaining a retail network in Pittsburgh. The Cincinnati-based bank, among the largest U.S. regional lenders, spent roughly a decade in Pittsburgh but bailed on the market in 2016. It sold its branches there to F.N.B. Corp., a smaller regional bank based in the city.
Other than a few M&A and branch deals, “I don’t get the sense that there really has been organic disruption of any significance in Pittsburgh that ultimately has affected PNC much,” Jon Winick, CEO of bank advisory at Clark Street Capital, which has worked with banks in Pittsburgh, said in an interview.
But, Winick added, BofA does not have to immediately butt heads with PNC. With a vigorous advertising and marketing campaign that it can surely afford, he said, BofA could “chip away at the smaller competitors to get a start.” A few years from now, if it has gained a toehold in the market, BofA could then look to take on PNC directly, perhaps by recruiting away some of its most productive lenders.
“That is probably down the road,” Winick said. “But that is one way to make some big moves.”
In the meantime, BofA will need to gather and build retail customer acquisition momentum. A recent sampling of Pittsburgh residents suggests that is certainly possible but hardly a sure thing.
Blair Brockmeyer, an account executive for Comcast Spotlight in the Pittsburgh area, said he currently is happy with his accounts at PNC. But notably higher deposit rates could motivate him to consider a switch. “Let’s see what BofA has to offer,” he said in an interview.
Jeffrey Smith, a Pittsburgh supply-chain manager, said he welcomes the added competition that BofA is bound to inject. But he is not likely to switch his accounts away from local lender NexTier Bank NA. “They have been big-time supporters of various events in the area and I think they should be rewarded for their involvement,” he said in an interview.