The second Spanish bank, BBVA, announced on Monday that it had sold its subsidiary in the United States to the American group PNC Financial Services for nearly ten billion euros, an agreement to give birth to the fifth bank in the United States.
The statement released in Madrid says the deal, worth $ 11.6 billion (€ 9.7 billion), is “very positive for all parties”. It is the second largest US banking deal since the 2008 financial crisis.
The purchase “will accelerate our growth and create long-term value for our shareholders”, said William S. Demchak, CEO of PNC, quoted in the press release.
When the transaction is effective, a priori around the middle of next year, PNC Financial Services, headquartered in Pittsburgh (Pennsylvania), will become the fifth American bank, according to this text.
Mainly based in the “Sunbelt” states (southern United States), particularly Texas, Alabama and Arizona, BBVA will retain its branch in New York and its representative office in San Francisco.
BBVA president Carlos Torres Vila in the press release welcomed an agreement that creates “a huge value” for the shareholders of the credit institute.
The Spanish bank found itself in the red over the first nine months of the year, a loss due mainly to the fall in the value of its American subsidiary.
The price agreed by BBVA and PNC Financial Services “represents 19.7 times the result obtained by the unit in 2019 and is equivalent to almost 50% of the current market value of BBVA”, specifies the press release.
“This award represents more than two and a half times the value that analysts attribute to this subsidiary [3,8 milliards d’euros]”, underlined Mr. Torres Vila.
Subsidiary in decline
The deal comes at a delicate time for BBVA, which, in the first nine months of the year, had recorded a net loss of 15 million euros.
These results were mainly due to the downward revision of the value of the BBVA subsidiary in the United States, recorded in the accounts at the end of the first quarter for an amount of two billion euros.
The president of BBVA also specifies in the press release that this subsidiary contributed less than 10% to the profit of BBVA last year.
BBVA had indicated last month that due to “the deterioration of the macroeconomic outlook” due to the Covid-19 pandemic, the bank had to write down financial assets for a total amount of 5 billion euros over the first nine months of 2020.
Provisions intended to deal with the risk of non-repaid loans reached 858 million euros at the end of September, up 113% compared to 2019.
The impact of the pandemic
In the third quarter, BBVA saw its net profit fall by 6.8% to 1.14 billion euros, nevertheless largely exceeding analysts’ forecasts.
Experts interviewed by financial information provider Factset expected on average a net profit of 749 million euros.
Its profits were mainly fed by financial transactions (372 million euros), which offset the impact of e on the bank’s accounts.
In 2019, BBVA saw its net profit decrease by 35% to 3.5 billion euros, after 2018 profit inflated by the sale of its subsidiary in Chile.
Besides Spain, BBVA is present in Mexico, South America and Turkey.
Mexico accounted for 45% of the bank’s profit for the first nine months of the year, Turkey 19% and Spain 16%.
Present in around thirty countries, the group employs more than 100,000 people.
The closing of the transaction with PNC is scheduled for “mid-2021”, when the necessary regulatory authorizations have been obtained, the press release said.
BBVA jumps on the stock market
BBVA took nearly 20% on the stock market on Monday at the start of the session after the announcement of the agreement.
Several intermediaries consider the transaction beneficial for BBVA, Credit Suisse believing that it will generate value. Jefferies had warned for his part that the agreement would be welcomed by investors.