BBVA has agreed to sell its U.S. subsidiary to PNC for a price of approximately $11.6 billion (€9.7 billion) in cash. The operation will generate a net capital gain of approximately $687 million (€580 million) and the tangible assets will be increased by $1.66 billion (€1.4 billion). The entity shoots up to 20% in the stock market after communicating the news.
Another company that celebrates with increases in the stock market operation is Sabadell, which advances up to 15%. The entity seems to interpret that BBVA has taken another step to fill its portfolio in order to carry out some acquisition in the markets where it operates and one of these could be the merger with Banco Sabadell.
Without a doubt, this sale would facilitate the negotiation with the Catalan bank, an operation that has gained notable strength since CaixaBank and Bankia also announced their merger.
In fact, after the announcement of the sale, the President of BBVA, Carlos Torres, and the CEO, Onur Genç, have stated that the entity intends to carry out a “relevant” share repurchase with the excess capital derived from the sale of its subsidiary, while it has not ruled out dedicating a part of the proceeds to a possible consolidation operation.
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The group was well capitalized even before the transaction
During the presentation to analysts that took place this Monday after the announcement of the sale, Torres emphasized that the group was already well capitalized even before the transaction, and stated that he does not feel comfortable operating with such a high structural capital cushion, so the operation provides great flexibility to think about different operations.
However, the entity does not expect to complete the sale before the next six to nine months, so until then it will not make any concrete moves. Furthermore, although the current price is very attractive for this strategy, the size of the buyback will depend on the level at which the securities are quoted at that time and will also be conditional on the European Central Bank (ECB) lifting its veto on shareholder remuneration.
Specifically, BBVA has agreed to sell 100% of its subsidiary BBVA USA Bancshares, a company that in turn owns all of the capital stock of BBVA USA, as well as other group companies in the United States.
In a relevant fact sent this Monday to the National Securities Market Commission (CNMV), BBVA has explained that the agreement reached does not include the sale of the institutional business of the BBVA group developed through its broker dealer BBVA Securities Inc. or the participation in Propel Venture Partners.
The price represents 19.7 times the result obtained by the unit in 2019 and is equivalent to nearly 50% of BBVA’s current stock market value, so the operation creates enormous value for shareholders. The transaction will have a positive impact on BBVA’s fully loaded CET1 capital ratio of close to 300 basis points, equivalent to $10 billion (€8.5 billion) of CET1 generation.
In the words of BBVA’s Chairman and CEO, it is “a great deal for all parties. PNC has recognized the enormous value of our business, our clients and our great team in the United States, which will be part of a leading financial group in the country.”
“The agreement strengthens our already strong financial position. It gives us a lot of flexibility to invest profitably in our markets -fuelling our long-term growth and supporting economies in the recovery phase- as well as to increase shareholder remuneration,” he added.
In the United States, BBVA is present in the Sunbelt region, with more than $100 billion in assets, 637 offices and leadership positions in Texas, Alabama and Arizona.
The news of the sale began to take hold last night after the Wall Street Journal and the Financial Times announced that PNC was in advanced talks to buy BBVA’s U.S. subsidiary in one of the most important banking operations since the financial crisis of 2008.
The closing of the transaction is now subject to obtaining regulatory approvals from the relevant authorities. It is estimated that this closure will take place in mid-fiscal year 2021.
As the Financial Times points out, BBVA joins other European banks, such as HSBC or Deutsche Bank, which have chosen to reduce their presence on the other side of the Atlantic after having difficulties competing with larger and better capitalized rivals.
Payout and dividend
During his speech to the analysts, Torres also added that BBVA’s objective will continue to be to apply a ‘pay-out’ (the part of the profit that is destined to dividends) of between 35% and 40%.
“It will continue to be a valid reference”, he pointed out. He also said that the group has sufficient capital to carry out both the repurchase of shares and the distribution of dividends as soon as the European Central Bank (ECB) allows it.
PNC will become the fifth largest bank in the United States by assets
Once the operation is completed, PNC – based in Pittsburgh – will become the fifth largest bank in the country by assets, with about $550 billion, at a time when the regional industry in the U.S. is still quite fragmented and is taking time to consolidate.
In fact, there are currently at least 30 regional entities with assets ranging from $50 billion to $250 billion.
“The acquisition will accelerate our growth trajectory and provide long-term shareholder value,” said William S. Demchak, president and CEO of PNC. “This transaction is an opportunity to move forward from a position of strength, accelerating PNC’s expansion by leveraging our acquisition expertise. We are pleased to be able to bring our leading technology and innovative products and services to new markets and customers, bringing together the commitment that both banks share to build diverse, high-performance teams and support the communities where we operate.
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First published in elEconomista.es, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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