BNP hires advisers to explore $15 bln Bank of the West sale - sources

* JPMorgan and Goldman Sachs working with BNP - sources

* Discussions still at early stage - sources

* PNC, Canada's TD and BMO seen as potential suitors

* Any deal would face U.S. regulatory challenges

LONDON, Nov 15 (Reuters) - BNP Paribas is working with advisers to assess a sale of its U.S. arm Bank of the West as it seeks to retreat from the American retail banking market after struggling to compete with larger and better capitalized rivals, sources told Reuters.

The French lender, which overtook Britain's HSBC last year to become Europe's largest bank by assets, is looking to part ways with its San Francisco-based retail banking subsidiary in a deal that could value it at about $15 billion, three sources with knowledge of the matter said.

JPMorgan and Goldman Sachs are preparing the business for a sale and have been working closely with BNP to gauge interest from prospective bidders, the sources said.

Discussions are still at an early stage and no deal is certain, they said.

Shares in BNP rose as much as 5.5% to 62.55 euros after the Reuters story and were 3.4% higher in early afternoon trading.

JPMorgan was first to secure a mandate from BNP during the summer, one of the sources said, having recently represented Spain's BBVA in the $11.6 billion sale of its U.S. operations to PNC Financial Services Group Inc - a deal BNP hopes to replicate.

BNP was not immediately available for comment. JPMorgan and Goldman Sachs declined to comment.

Bank of the West, with $99.2 billion of assets as of June 30, ranks as BNP's biggest business outside Europe.

A sale would give Chief Executive Jean-Laurent Bonnafé cash to invest on the continent where the European Central Bank is urging the region's lenders to merge as they have lagged their U.S. and Chinese rivals in profitability and size since the 2008 financial crisis, the sources said.

While centered on California, the 147-year old Bank of the West has retail operations in 19 U.S. West and Midwest states. It was bought by BNP in 1979 and subsequently merged with its local subsidiary, the French Bank of California (FBC).

Bank of the West sells a range of retail banking products and services to individuals, small businesses and corporate clients with a strong presence in specialized financing areas, such as agribusiness and farming.

BIDDING FIELD

To secure a successful sale of the business, BNP would have to overcome a number of challenges, the sources noted.

U.S. President Joe Biden has called for more scrutiny of bank mergers, while the departure nL1N2RZ1IC of Randal Quarles as the Federal Reserve's vice chair for supervision and uncertainty over Jerome Powell's future as chair has cast doubt on banking consolidation.

Dealmakers, who spoke with Reuters on condition of anonymity, said this leadership void has created an effective hold on the approval of large bank acquisitions by the Fed, making it difficult for bank boards to sanction new transactions.

"BNP needs to find a partner who's willing to fight hard to win regulatory approval," the first source said.

The French lender has long seen PNC as an ideal suitor for Bank of the West, and its sale efforts were emboldened by the purchase price PNC paid for BBVA's U.S. business, valuing it at 20 times its 2019 earnings, the source said.

But with PNC now busy integrating its latest acquisition, BNP is left with a small pool of potential buyers, which include Canadian banks and some regional U.S. players.

Toronto-Dominion Bank and Bank of Montreal are seen as possible suitors alongside Ohio-based KeyCorp , two of the sources said.

TD Bank, with retail operations along the U.S. East Coast, has proceeds available from the $26 billion sale of broker-dealer TD Ameriprise to Charles Schwab Corp. Chief Executive Bharat Masrani said in May the bank was open for M&A opportunities which made financial sense, with a focus on its existing footprint.

BMO executives have expressed a desire to grow the bank's U.S. presence and would be in a position to add cash to finance a possible deal while KeyCorp would instead need to pursue an all-stock transaction.

Royal Bank of Canada - which owns City National Bank, the ninth-largest bank in California by deposits - could also express interest in Bank of the West, one of the sources said.

PNC and KeyCorp declined to comment while TD, BMO and RBC were not immediately available.

(Reporting by Pamela Barbaglia in London and David French in New York; Editing by Emelia Sithole-Matarise)