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

PNC FINANCIAL SERVICES GROUP, INC.

(PNC)
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PNC Deal Highlights Challenges of U.S. Market for European Banks

11/16/2020 | 10:10am EST

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 stump up.

BBVA's retreat from the U.S. also shows how the coronavirus pandemic is making European banks more calculated about their prospects for growth and survival, and comes amid an expected wave of mergers and acquisitions involving lenders in Europe.

With the cash proceeds from the PNC deal -- worth 50% of BBVA's entire market value -- the bank will be able to weather the pandemic more comfortably. It also has the option to grow in its other key markets, including Spain and Mexico, and to buy back shares to boost its share price and satisfy shareholders. Shares in smaller Spanish bank, Banco de Sabadell SA, soared 20% on investor hopes that BBVA might buy it to enlarge its domestic business.

"BBVA lacked scale in the U.S. to enhance returns in a sustained manner and hence make the local unit become a more transformational part of the group," UBS analysts said in a note. They were among analysts flagging Sabadell as a possible acquisition target, with its shares down more than 60% this year.

BBVA was one of the European banks 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."

Shares of BBVA were up close to 20% in midday trading in Europe, but are still down almost a quarter this year. 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 banking regulators further hit the stock.

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 declined to discuss potential targets, 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."

Another duo of Spanish lenders, CaixaBank SA and Bankia SA, agreed to merge in September.

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

11-16-20 1009ET

Stocks mentioned in the article
ChangeLast1st jan.
ABN AMRO BANK N.V. -2.11% 8.332 Real-time Quote.3.89%
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. -0.82% 4.002 Delayed Quote.-0.82%
BANCO DE SABADELL, S.A. -4.99% 0.3654 Delayed Quote.3.22%
BANCO SANTANDER, S.A. -2.23% 2.581 Delayed Quote.1.69%
BANKIA, S.A. -3.94% 1.402 Delayed Quote.-3.24%
CAIXABANK, S.A. -3.93% 2.052 Delayed Quote.-2.33%
HSBC HOLDINGS PLC -1.51% 407.35 Delayed Quote.7.52%
PNC FINANCIAL SERVICES GROUP, INC. -0.73% 152.57 Delayed Quote.2.40%
UBS GROUP AG -0.68% 13.15 Delayed Quote.5.45%
US DOLLAR / TURKISH LIRA (USD/TRY) 0.00% 7.4106 Delayed Quote.-0.20%
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Financials (USD)
Sales 2020 16 810 M - -
Net income 2020 6 912 M - -
Net Debt 2020 - - -
P/E ratio 2020 9,37x
Yield 2020 3,02%
Capitalization 64 690 M 64 690 M -
Capi. / Sales 2020 3,85x
Capi. / Sales 2021 3,68x
Nbr of Employees 50 403
Free-Float 78,0%
Chart PNC FINANCIAL SERVICES GROUP, INC.
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Technical analysis trends PNC FINANCIAL SERVICES GROUP, INC.
Short TermMid-TermLong Term
TrendsBullishBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 22
Average target price 160,56 $
Last Close Price 152,57 $
Spread / Highest target 17,3%
Spread / Average Target 5,24%
Spread / Lowest Target -14,8%
EPS Revisions
Managers and Directors
NameTitle
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