PNC to buy BBVA's US banking arm for US$11.6b

New York

PNC Financial Services Group said on Monday it would buy the US business of Spanish lender BBVA for US$11.6 billion in cash, further consolidating the US banking sector.

It is the second-largest US banking deal since the 2008 financial crisis and creates a US bank with nearly US$560 billion of assets and a presence in two dozen states.

The move underscores how a loosening of financial regulations and lowering of corporate taxes under President Donald Trump has emboldened regional lenders to pursue scale through dealmaking, as they compete with bigger players such as JPMorgan Chase and Wells Fargo.

PNC and BBVA have been in talks about a deal for the last few weeks, and decided to press on following the outcome of the Nov 3 US presidential election because they believe the regulatory environment will not change with Democrat Joe Biden as president and the Republicans likely to continue controlling the US Senate, sources told Reuters.

PNC said it was expecting the deal, which has been approved by the boards of both companies, to add to its earnings by about 21 per cent in 2022.

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The deal comes about six months after PNC sold its 22.4 per cent stake in mutual fund giant BlackRock for US$14.2 billion. PNC booked after-tax gains of US$4.3 billion on the sale, which it will use to fund the deal with BBVA as it seeks to expand its footprint in the south-west of the US, the sources said.

The transaction represents an unwinding of BBVA's US$9.6 billion acquisition in 2007 of Compass Bancshares, which it turned into its US subsidiary. BBVA decided to retreat from the US market after its poor performance weighed on its stock, the sources said. The stock is down 36 per cent year-to-date.

BBVA said it would keep some of its businesses in the US such as its brokerage and its stake in Propel Venture Partners and would keep handling some of its wholesale banking operations from its New York office.

The transaction, expected to close in mid-2021, will mean 300 basis points of common equity tier one ratio and a 580 million euro (S$924.7 million) positive impact on its net profit, BBVA said.

Deal activity in the US banking sector languished after the financial crisis, as stricter rules were imposed on lenders with more than US$50 billion in assets and regulators barred banks with compliance issues from expanding.

Changes in US tax laws under Mr Trump, however, lowered corporate taxes, freeing up capital that banks could use to fund deals. Regulators started to approve more regional bank mergers, such as Cadence Bancorp's combination with State Bank Financial Corporation and Synovus Financial Corp's acquisition of FCB Financial Holdings.

The biggest banking deal since the 2008 financial crisis was the creation of Truist Financial Corp last year through US regional lender BB&T Corp's US$28 billion all-stock acquisition of SunTrust Banks.

Another deal catalyst has been this year's Covid-19 pandemic, which has driven more customers to bank online and prompted lenders to review their brick-and-mortar locations in a push to cut costs.

PNC, which has a market value of US$52 billion, has traditionally been focused on the Mid-Atlantic, Midwest and Southeast US regions. The deal gives it a bigger presence in Texas and allow it to enter other sunbelt states such as Arizona and New Mexico.

Investors have been growing impatient with BBVA's efforts to tackle the poor performance of its US business after the Spanish lender took a US$1.5 billion writedown in its fourth-quarter 2019 earnings, blaming low interest rates and declining growth.

BBVA CEO Onur Genç changed tack recently, stating he was open to sales of businesses if it created value for shareholders. REUTERS