The deal stands as the second-largest banking deal since the financial crisis of 2008, preceding the $28 billion all-stock merger between BB&T Corp and SunTrust Banks to form Trust Financial Corp.
The American business values at 19.7 times its 2019 earnings and 1.34 times its book value as of September 2020. BBVA USA Bancshares has around $104 billion in assets under management. Around 50% of BBVA’s current market capitalization is represented by the price.
PNC revealed that the merger with BBVA USA will replace the net income generated through its passive BlackRock investment. The bank invested in BlackRock in 1995 with $204 million. However, PNC’s share shrank in the firm and eventually was sold for $15 billion earlier this year.
The newly merged bank will be the fifth-largest retail bank in the U.S, present across 24 states, with combined assets of $560 billion. As for BBVA, after the performance of the firm worsened, its stocks took a hit. As of last Friday, the bank’s stock was down 36% year-to-date.
BBVA’s shares surged more than 15% in European trading Monday. Investors were optimistic that BBVA could use the sales proceedings to buy another small-scale Spanish competitor that has a market capitalization of around 1.8 billion euros.
As the boards of both the companies have agreed to the deal, PNC will be the surviving entity as it absorbs BBVA USA Bancshares and BBVA USA merges with PNC Bank. Consequently, BBVA’s common equity tier one ratio – which is a measure of a company’s financial strength- will increase by 300 basis points leading to a proforma capital ratio of 14.46%.
The firm’s executives said that the deal would boost its capacity to payout dividends to shareholders while hinting at a potential “sizeable” share buyback. The net profit would go up by 580 million euros ($687 million). On the other side, PNC said that it expects the deal to add around 21% to the bank’s earnings by 2022.
The deal is set to close in mid-2021.