By Greg Roumeliotis and David French
(Reuters) - PNC Financial Services Group Inc (N:PNC) said on Monday it would buy the U.S. business of Spanish lender BBVA (MC:BBVA) for $11.6 billion in cash, further consolidating the U.S. banking sector.
It is the second-largest U.S. banking deal since the 2008 financial crisis and creates a U.S. bank with nearly $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 & Co (N:JPM) and Wells Fargo & Co (N:WFC).
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 U.S. presidential election because they believe the regulatory environment will not change with Democrat Joe Biden as president and the Republicans likely controlling the U.S. 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% in 2022.
The deal comes about six months after PNC sold its 22.4% stake in mutual fund giant BlackRock Inc (N:BLK) for $14.2 billion. PNC booked after-tax gains of $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 southwest of the United States, the sources said.
The transaction represents an unwinding of BBVA's $9.6 billion acquisition in 2007 of Compass Bancshares Inc, which it turned into its U.S. subsidiary. BBVA decided to retreat from the U.S. market after its poor performance weighed on its stock, the sources said. The stock is down 36% year-to-date.
BBVA said it would keep some of its businesses in the United States 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 ($687.18 million) positive impact on its net profit, BBVA said.
DEAL CATALYSTS
Deal activity in the U.S. banking sector languished after the financial crisis, as stricter rules were imposed on lenders with more than $50 billion in assets and regulators barred banks with compliance issues from expanding.
Changes in U.S. tax laws under 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 (N:CADE) combination with State Bank Financial Corporation and Synovus Financial Corp's (N:SNV) acquisition of FCB Financial Holdings.
The biggest banking deal since the 2008 financial crisis was the creation of Truist Financial Corp (N:TFC) last year through U.S. regional lender BB&T Corp's $28 billion all-stock acquisition of SunTrust Banks Inc (NYSE:STI).
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 $52 billion, has traditionally been focused on the Mid-Atlantic, Midwest and Southeast U.S 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 U.S. business after the Spanish lender took a $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.
Bank of America (NYSE:BAC), Citi, Evercore and PNC Financial Institutions Advisory acted as financial advisers to PNC and Wachtell, Lipton, Rosen & Katz was its legal counsel.
J.P. Morgan Securities PLC represented BBVA as financial adviser and Sullivan & Cromwell LLP was its legal counsel.
($1 = 0.8440 euros)