PNC Will Pay $11.6 Billion for BBVA’s U.S. Unit in One of the Biggest Bank Deals Since the Financial Crisis
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View of a PNC Bank branch in Washington, D.C., on Dec. 30, 2013.
Agence France-Presse/Getty ImagesShares of BBVA soared nearly 20% on Monday, after PNC Financial Services Group agreed to buy the Spanish lender’s U.S. unit for $11.6 billion in cash, in one of the biggest bank deals since the financial crisis of 2008.
The deal will create the fifth-biggest U.S. retail lender behind JPMorgan, Bank of America, Wells Fargo, and Citigroup, with around $560 billion in assets, and give the Pittsburgh-based PNC a “coast-to-coast franchise” with a presence in 29 of 30 of the biggest U.S. markets.
The trans-Atlantic merger marks the first big bank deal since February 2019 when BB&T acquired SunTrust for $28 billion, creating what is now known as Truist
The news gave European stocks, notably banks, a lift, with markets rising further on news of a positive Covid-19 vaccine trial from Moderna. Shares of smaller lender Banco de Sabadell climbed nearly as much, while stock of the country’s biggest bank in terms of market capitalization, Banco Santander, rose 5%. PNC shares gained 4% in premarket trading.
The deal comes six months after PNC sold its stake in asset manager BlackRock for $14.4 billion as it looked to shore up its balance sheet. Some analysts correctly predicted at the time that PNC would purchase another bank, even as they suggested the lender expand via the fast-growing fintech/payments space.
PNC said it expects the deal, which is expected to close in mid 2021, will add 21% to its earnings in 2022, and replace net income from the passive BlackRock stake.
BBVA, Spain’s second largest lender, said the acquisition price represented almost 20 times the 2019 earnings of PNC and almost 50% of BBVA’s overall market capitalization. The deal will increase BBVA’s core equity tier one ratio by about 300 basis points, the bank said.
Banking stocks have been hit hard by the Covid-19 pandemic, as investors have shunned the sector amid ultralow interest rates and concerns over rising bad debts. But banks have been drawing more investor attention as the year draws to a close.
Looking ahead. BBVA, which swung to a loss in the first quarter as it reported €2.08 billion of U.S. goodwill impairment, should gain some breathing space from the deal. Struggling amid the pandemic, which is weighing on Spain’s economy, shares of the bank have lost 24% so far this year.
“Strategically, and despite strong regional shares, BBVA lacked scale in the U.S. to enhance returns in a sustained manner and hence make the local unit become a more transformational part of the Group,” said Ignacio Cerezo and Juan Perez-Carrascosa, analysts at UBS, in a note to clients.
BBVA also said the deal would boost its capacity to increase payouts to shareholders, including a potential “sizable” share buyback. UBS speculated the bank could also some of the proceeds to buy smaller rival Sabadell, or acquire minority stakes of Garanti BBVA, which operates in Turkey.
In any case, the PNC news “improves BBVA’s M&A ‘currency’ buy boosting capital and valuation, so the market will see the bank as better prepared to undertake acquisitions as needed,” the UBS analysts added.
