The operation will generate capital gains of around 580 million euros and an impact of 300 points on the highest quality capital
The Spanish group BBVA has agreed with The PNC Financial Services Group (PNC) to sell 100% of its US subsidiary for approximately 11.6 billion dollars (about 9.7 billion euros at an exchange rate of 1.20 dollars per euro). It is a very attractive price in relation to the bank’s valuation, so BBVA shares soar this Monday on the stock market when the operation is known. The bank’s price has risen more than 20%, although it has later reduced profits.
In a relevant event sent this Monday to the National Securities Market Commission (CNMV), BBVA has explained that the agreement reached does not include the sale of the institutional business of the BBVA group developed through its broker BBVA Securities Inc. or the participation in Propel Venture Partners US Fund I, LP
The US $ 11.6 billion serving as the price of the transaction will be paid entirely in cash. The entity estimates that the operation will generate a positive impact on the principal capital ratio CET 1 (fully loaded) of the BBVA group of more than 8,500 million euros, about 300 basis points, and a positive result net of taxes of approximately 580 million euros.
The price is equivalent to approximately 50% of BBVA’s market capitalization despite contributing less than 10% of the group’s profit. As BBVA explained to analysts, the sold business comprises 637 branches, had assets of $ 102 billion and achieved an attributable profit of $ 587 million in 2019.
According to BBVA, analysts assigned an average value of about 3,800 million euros to this business, so that the price achieved by the operation is 6,200 million euros higher, which is equivalent to approximately 30% of the market capitalization of the Bank.
The closing of the Transaction is subject to obtaining the regulatory authorizations from the competent authorities. It is estimated that this closure will take place in mid-2021.
BBVA has indicated to the analysts that the operation may serve to increase shareholder remuneration. “The transaction demonstrates our discipline in the allocation of capital based on value and grants strategic optionality,” he stated in the presentation.
According to the bank, it not only improves the financial position, but also opens the door both to “invest capital profitably in the markets” where it is already present and to “increase shareholder remuneration, with a relevant share buyback being an option attractive at current prices ”, as he pointed out.
However, BBVA specifies that any potential buyback would never occur before the closing of the operation, scheduled for mid-2021. Any buyback proposal would take into account the bank’s price and would require the approval of the shareholders, the supervisor and the elimination by the ECB of the recommendation not to remunerate the shareholder.
BBVA’s strong rise on the stock market has spread to other stocks in the sector. All the Ibex banks have reacted with strong increases, among which those of Sabadell, Bankinter and Santander stand out.