PNC Deal Highlights Challenges of U.S. Market for European Banks -- Update
November 16 2020 - 2:13PM
Dow Jones News
By Patricia Kowsmann and Margot Patrick
Banco Bilbao Vizcaya Argentaria SA's sale of its U.S. operations
to PNC Financial Services Group Inc. underlines that, for European
banks, America is a tough nut to crack.
The problem for BBVA was that while it grew in the U.S. over a
15-year period, particularly in the southwest, it didn't get big
enough that it made sense to stay in the country. The
second-largest Spanish lender lacked the capital to further expand
its footprint and couldn't ask shareholders -- already struggling
with its depressed share price -- to put in more money.
Instead, BBVA signaled it will use the sale proceeds to increase
its presence at home and in other core markets to scale up and
boost profits. On Monday, following the U.S. sale announcement,
BBVA said it was in merger talks with domestic peer Banco de
Sabadell SA.
BBVA's strategic shake-up shows how the coronavirus pandemic is
forcing European banks to be more calculated about their prospects
for growth and survival. Another duo of Spanish lenders, CaixaBank
SA and Bankia SA, agreed to merge in September, and analysts and
regulators are betting more will come, particularly in domestic
European markets.
With the cash proceeds from the PNC deal -- equating to 50% of
BBVA's entire market value -- the bank could buy Sabadell and still
have money left to buy back shares to boost its share price and
satisfy shareholders. Sabadell's market value stood at $2.8 billion
Monday, according to the bank's website, less than a quarter of
what BBVA will get from PNC when the deal closes next year.
Analysts had flagged BBVA's lack of scale in the U.S. before, as
well as the possibility of a Sabadell tie-up. Sabadell's shares,
which have been hit along with other European banks', are down some
60% this year.
Shares of BBVA closed Monday up 15%. Sabadell's rose almost 25%
before BBVA made its announcement after the market close.
BBVA was among the European banking giants that spread out
across the world before the last financial crisis on a hunt for
growth. It bought a small California bank in 2004 and expanded
across Texas, Arizona and other Sun Belt states through a string of
acquisitions. It and larger Spanish rival Banco Santander SA both
kept sizable retail banks in both North and South America, even
after other foreign banks exited in recent years.
But while BBVA was the number four bank in Texas by deposits,
its market share, at 4.5%, was considered too small for strong
returns.
Pittsburgh-based PNC said it agreed to buy BBVA's U.S.
operations for $11.6 billion. "This is a great transaction, one
that is testament to our focus on generating value to our
shareholders" said Carlos Torres Vila, BBVA executive chairman,
adding the excess capital "provides lots of strategic
flexibility."
European banks were already struggling to make money under a
low-interest rate environment and have been hard hit by the
pandemic. Spain's economy in particular has suffered as the spread
of the virus has triggered months of lockdowns. A ban on dividend
payments by European banking regulators further hit the stocks.
Some European bank executives say their aim is to come out of
the current crisis with more viable operations than they started
with, by making long-postponed decisions and scissoring businesses
that can't compete in the long term.
Mr. Torres Vila, in a conference call with analysts, declined to
discuss any merger plans, but said in months ahead, and as
economies recover from the pandemic hit, "We believe that there
might be opportunities to reinforce the franchises where we have
leadership positions."
Bank executives and industry consultants say there are still
benefits to being in different countries, such as diversifying
earnings in different economies. The offsets can be multiple layers
of regulation, local capital that can become trapped, and the
difficulty of attaining adequate scale in multiple markets.
BBVA continues to bet in markets where it sees itself as big
enough to succeed, including at home in Spain, and in Mexico and
Turkey. Its market share in lending in those countries is 13%, 23%
and 18%, respectively.
Other geographic retreats so far this year have included HSBC
Holdings PLC's shuttering of around one-third of its U.S. branches,
and ABN Amro Bank NV curtailing its lending to corporate customers
outside of Europe. Sabadell, BBVA's potential acquisition target,
has been considering ways to exit from the U.K. after buying a
midsize bank there five years ago that has struggled for scale.
Write to Patricia Kowsmann at patricia.kowsmann@wsj.com and
Margot Patrick at margot.patrick@wsj.com
(END) Dow Jones Newswires
November 16, 2020 13:58 ET (18:58 GMT)
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