BBVA sells its American subsidiary to prepare a merger with Banco Sabadell

Posted on Nov 16, 2020 at 1:48 p.m.Updated Nov 16, 2020, 7:27 PM

BBVA turns the page of the American adventure and prepares its expansion in the Iberian Peninsula by reactivating the project of a merger with Banco Sabadell. The Spanish bank announced Monday that it had sold its subsidiary in the United States to the Pittsburgh group PNC, for 11.6 billion dollars (9.7 billion euros). The deal is the largest in the U.S. market since BB&T bought SunTrust for $ 28 billion in February 2019, forming what is now Truist.

New American giant

The agreement could open the door to the creation of a new banking giant on the other side of the Atlantic, with nearly $ 560 billion in assets and a presence in around 20 states.

It would benefit from the good complementarity of the PNC networks, which operate mainly in the northeastern quarter of the country as far as Chicago, and BBVA, whose headquarters are in Alabama, and which is active especially in the south of Florida. to Texas, New Mexico or California.

With 634 branches, BBVA’s US subsidiary is a little bigger than BNP Paribas’ BancWest, which has 534 branches. The Spanish group said the sale price was 20 times its subsidiary’s 2019 profits and nearly 50 times. % of its overall market capitalization. Other Europeans, such as Deutsche Bank or HSBC, are also reducing their presence in the United States.

Refocusing on the Iberian market

The sale of its American branch, acquired in 2004, allows BBVA to raise its CET1 equity ratio from 11.5% to 14.5% and will bring 580 million euros in net profit.

In Spain, the announcement of the transaction was received with enthusiasm, as the signal of BBVA’s refocusing on the Iberian market, even though the group retains its activities in Mexico and Turkey. The action jumped more than 19% on Monday in Madrid, and analysts were already anticipating future acquisitions. Indeed, the suspense did not last and, a few hours later, BBVA informed the Spanish stock exchange authority to study a possible merger with Banco Sabadell, the fifth banking establishment in the country.

That same morning, BBVA president Carlos Torres refused to comment on the rumors, but he pointed out that the sale of the American branch would strengthen the group’s strategic flexibility to face opportunities, invest “Profitably in our markets” and “Increase shareholder compensation”. The aim is in particular to carry out a share buyback program, which would however need the agreement of the European Central Bank (ECB).

Merger with Banco Sabadell

BBVA is therefore entering the merger ball already opened by the union between CaixaBank and Bankia, announced in September and which must be effective at the beginning of December. The merger between BBVA and Banco Sabadell, number 5 on the Spanish market, was the most logical. Informal conversations between the two entities had been launched in September, but the lack of capital was until then the big obstacle for the takeover.

The American windfall therefore arrives at the right time to resolve the problem and the Stock Exchange anticipated the announcement of the merger project on Monday morning with a 14% increase in Sabadell’s share. Stricken by the Covid crisis, the Catalan banking establishment must indeed actively seek a partner, encouraged by the calls for consolidation launched by the ECB. If BBVA has always been presented as a favorite for the takeover, other combinations were also mentioned elsewhere, such as a union with Abanca or, again, why not with the new CaixaBank-Bankia alliance.

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