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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 -- Update

11/16/2020 | 01:59pm 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 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

11-16-20 1358ET

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%
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%
Duration : Period :
PNC Financial Services Group, Inc. Technical Analysis Chart | MarketScreener
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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 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
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