Thursday, July, 07, 2022 04:29:20

BBVA to sell its U.S. subsidiary to PNC to improve financial position

BBVA, a financial services company, has reportedly agreed to sell its U.S. subsidiary to PNC for €9.7 billion ($11.6 billion) in cash. This amount represents 19.7x the 2019 earnings of the unit and is nearly 50% of the current market capitalization of BBVA, providing significant value to shareholders. The deal will positively impact the company’s CET1 generation’s €8.5 billion or fully-loaded CET1 ratio of the c.300 basis points.

Carlos Torres Vila, BBVA Group’s executive chairman, has reportedly stated that the transaction will prove beneficial for both sides and enhance the company’s robust financial position. Moreover, it will have the flexibility to deploy capital in its markets to strengthen its long-term growth as well as support various economies in the recovery phase.

In addition, the agreement will help unlock hidden value as the price is above 2.5x the average valuation assigned by the analysts to the business, i.e. €3.8 billion. This valuation has been assigned for business that represented below 10% of the net attributable profit of FY2019 Group. The price also represents over 50% of the current market capitalization of BBVA.

The deal is expected to help BBVA’s pro-forma CET1 ratio reach 14.5% as of September 2020. The company will have the flexibility to invest in the markets and increase its distributions to the shareholders, along with a sizeable buyback option at the current share prices. Additionally, the sale will generate approximately €580 million in net capital gain of taxes, with an increase in the company’s tangible book value by €1.4 billion.

The agreement is anticipated to be closed by the middle of 2021 following the attainment of the required regulatory approvals. J.P. Morgan Securities served as the financial advisor and Sullivan & Cromwell LLP as the legal advisor to BBVA. On the other hand, PNC Financial Institutions Advisory, Evercore, and Bank of America served as the financial advisers, and Wachtell, Lipton, Rosen & Katz as the legal counsel to PNC.

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