BBVA has sealed the sale of its subsidiary in the United States to PNC for around 11.6 billion dollars (9.7 billion euros) in cash.
The ‘blue bank’ has specified that the transaction will generate a capital gain net of taxes of about 580 million euros, and tangible assets will increase by 1,400 million euros.
The price of the transaction represents 19.7 times the result obtained by the unit in 2019 and is equivalent to about 50% of BBVA’s current market value, so the transaction creates “enormous” value for shareholders.
The transaction, which is expected to close in mid-2021, once the necessary regulatory authorizations are obtained, will have a positive impact on BBVA’s CET1 ‘fully loaded’ capital ratio of nearly 300 basis points, equivalent to 8,500 million euros generation of CET1.
“This is a great operation for all parties. PNC has recognized the enormous value of our business, our clients and our great team in the United States, who will be part of a leading financial group in the country, ”said the president of BBVA, Carlos Torres Vila.
“The agreement strengthens our already strong financial position. It gives us a lot of flexibility to invest profitably in our markets – driving our long-term growth and supporting the economies in the recovery phase – as well as to increase shareholder remuneration ”, he highlighted.
In the United States, BBVA is present in the Sunbelt region, with more than 100,000 million dollars (8,438 million euros) in assets, 637 offices and leadership positions in Texas, Alabama and Arizona.
Once the operation is complete, PNC – based in Pittsburgh, Pennsylvania – will become the fifth largest bank in the country by assets.
The transaction excludes the ‘broker dealer’ (BBVA Securities) and the New York branch, through which BBVA will continue to provide corporate and investment banking services to its large corporate and institutional clients. Additionally, BBVA maintains the representative office in San Francisco and the investment fund in ‘fintech’ Propel Venture Partners.
“The acquisition will accelerate our growth trajectory and provide long-term shareholder value,” said PNC President and CEO William S. Demchak.
“This operation is an opportunity to walk towards the future from a position of strength, accelerating PNC’s expansion, taking advantage of our experience in acquisitions. We are extremely pleased to be able to bring our leading technology and our innovative products and services to new markets and customers, uniting the commitment that both banks share to form diverse high-performance teams and to support the communities where we operate ”, he added.
PNC’s 100% cash offer values the business sold at 19.7 times its result in 2019 and 1.34 times its tangible equity as of September 30, 2020. Likewise, the transaction highlights the value of the subsidiary since the price represents more than 2.5 times the average valuation assigned by analysts to the franchise (3,800 million euros), for a business that accounted for less than 10% of the Group’s attributable profit in 2019. In addition, the price is equivalent to almost 50% of the current market value of BBVA.
The operation will have a positive impact on the CET1 ‘fully-loaded’ ratio of approximately 300 basis points, equivalent to 8,500 million euros of CET1 capital generation. Including this positive impact, the ‘fully loaded’ CET1 pro-forma ratio as of September 30, 2020 would reach 14.5%.
With the operation, BBVA has highlighted that it will have “greater strategic flexibility” to invest in the markets in which it operates and to increase shareholder remuneration, with a relevant share buyback being an attractive option at current prices.
JP Morgan Securities has been the exclusive financial advisor to BBVA in this transaction, while Sullivan & Cromwell LLP has been the legal advisor. Bank of America, Citi, Evercore and PNC Financial Institutions Advisory have been the financial advisers to PNC and Wachtell, Lipton, Rosen & Katz, the legal advisers.
The exclusive financial advisor for the sale of the BBVA subsidiary in the United States has been JP Morgan Securities. For their part, Sullivan & Cromwell LLP has acted as legal advisor, while the role of legal advisers to PNC and Wachtell, Lipton, Rosen & Katz has been held by Bank of America, Citi, Evercore and PNC Financial Institutions Advisory.