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MarketScreener Homepage  >  Equities  >  Nyse  >  PNC Financial Services Group, Inc.    PNC


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PNC Deal Highlights Challenges of U.S. Market for European Banks -- 2nd Update

11/16/2020 | 03:32pm EST

By Patricia Kowsmann, Margot Patrick and Orla McCaffrey

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 deals will come.

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 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 European 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 kept sizable retail banks in both North and South America, even after other foreign banks exited in recent years.

But while BBVA was the No. 4 bank in Texas by deposits, its market share, at 4.5%, was considered too small for strong returns.

European banks already were 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. European banking regulators' ban on dividend payments further hit the stocks. In the U.S., banks big and small are warning that the economic pain is far from over.

Pittsburgh-based PNC said it agreed to buy BBVA's U.S. operations for $11.6 billion. In the U.S., shares of PNC were up 2% in afternoon trading. Big bank takeovers have been rare since the 2008 crisis, with major players unwilling to test the political waters and wary of new regulations now applied to larger banks. Democratic administrations have typically been less friendly toward megabank deals.

"The regulatory approval process is opaque at best," said Abbott Cooper, a founder of Driver Management, a bank-focused investment-management firm. "There are a lot of ways wrenches can be thrown into the gears."

The merger that gave birth to Truist Financial Corp. last year galvanized a wave of congressional hearings that helped push the bank to postpone closing hundreds of branches.

Still, PNC is confident it will receive approval for BBVA, which had been at "the top, or near top, of our wish list," PNC Chief Executive Bill Demchak said on a call with investors Monday, in part because the combined entity will be "one-fifth the size of the giant four banks out there." The combined PNC-BBVA will have assets of about $550 billion. JPMorgan Chase & Co., the largest bank in the U.S., has more than $3 trillion.

Dick Bove, a banking analyst at Odeon Capital Group LLC, said in a note to clients Monday "It is not altogether certain that this deal will be certified." Still, he said PNC has "proven repeatedly that it is capable of turning around failing franchises." That includes its handling of National City Corp., a Cleveland-based regional forced by regulators to accept a deal in the 2008 financial crisis.

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 by European banks 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 five years ago buying a midsize bank there that has struggled for scale.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com, Margot Patrick at margot.patrick@wsj.com and Orla McCaffrey at orla.mccaffrey@wsj.com

(END) Dow Jones Newswires

11-16-20 1531ET

Stocks mentioned in the article
ChangeLast1st jan.
ABN AMRO BANK N.V. 1.03% 8.396 Real-time Quote.4.69%
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. -2.76% 3.835 Delayed Quote.-4.96%
BANCO DE SABADELL, S.A. -1.82% 0.3618 Delayed Quote.2.20%
BANCO SANTANDER, S.A. -3.95% 2.4325 Delayed Quote.-4.16%
BANKIA, S.A. -4.06% 1.322 Delayed Quote.-8.76%
CAIXABANK, S.A. -3.21% 1.9475 Delayed Quote.-7.31%
HSBC HOLDINGS PLC -0.01% 400.15 Delayed Quote.5.62%
JPMORGAN CHASE & CO. -2.83% 127.86 Delayed Quote.3.55%
PNC FINANCIAL SERVICES GROUP, INC. -2.45% 144.44 Delayed Quote.-3.06%
TRUIST FINANCIAL CORPORATION -3.68% 48.39 Delayed Quote.0.96%
US DOLLAR / TURKISH LIRA (USD/TRY) 0.17% 7.40497 Delayed Quote.-0.45%
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Financials (USD)
Sales 2020 16 810 M - -
Net income 2020 6 912 M - -
Net Debt 2020 - - -
P/E ratio 2020 8,87x
Yield 2020 3,18%
Capitalization 61 243 M 61 243 M -
Capi. / Sales 2020 3,64x
Capi. / Sales 2021 3,48x
Nbr of Employees 50 403
Free-Float 77,8%
Duration : Period :
PNC Financial Services Group, Inc. Technical Analysis Chart | MarketScreener
Full-screen chart
Technical analysis trends PNC FINANCIAL SERVICES GROUP, INC.
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 22
Average target price 161,36 $
Last Close Price 144,44 $
Spread / Highest target 23,9%
Spread / Average Target 11,7%
Spread / Lowest Target -10,00%
EPS Revisions
Managers and Directors
William Stanton Demchak Chairman, President & Chief Executive Officer
E. William Parsley Chief Operating Officer & Executive Vice President
Robert Q. Reilly Chief Financial Officer & Executive Vice President
Ganesh Krishnan Chief Information Officer & Executive VP
Charles E. Bunch Independent Director