PNC to buy BBVA’s U.S. operations for $11.6B

Yahoo Finance’s Brian Cheung joins the Yahoo Finance Live panel to discuss PNC buying the U.S. operations of Spanish Bank BBVA.

Video Transcript

ZACK GUZMAN: Welcome back to "Yahoo Finance Live." It's been a very quiet deal season, in terms of the activity we've seen between banks. But a little bit of a break from that theme this year in 2020 after Spanish Financial Group, BBVA, announced it's agreed to sell its US business to PNC for more than $11 billion. It's a pretty big deal, especially considering the slowdown we've seen. And we want to get to Yahoo Finance's, Brian Cheung, who has the details on that. Brian.

BRIAN CHEUNG: Well, Zack, as you mentioned, a pretty big deal-- $11.6 billion for PNC to buy the US subsidiary of the Spanish financial firm of BBVA. This is the biggest deal in bank land, since that BB&T SunTrust merger not so long ago. This particular deal with PNC would add about $104 billion in total assets to the Pittsburgh based bank. And that would dramatically expand PNC's reach, specifically in the South and Southwest. Think of Texas, Arizona, California, areas where PNC currently doesn't have much of a presence. The bank, as I mentioned, is really focused on the East Coast and the Rust Belt, as a Pittsburgh-based firm.

Now, this is an all-cash deal. That's not necessarily a surprise, given how PNC didn't have the currency strength with its stock really being battered over 20% year to date. That's been the story, largely, for financials.

But the bigger story, I think, here is the retreat of BBVA-- again, that's Spanish financial firm-- in the United States. This is a trend that we've seen with a number of other foreign banking organizations, as well. When you think about the London-based HSBC backing out of a large, substantial part of its US operations. They pulled about a third of their branches in the US earlier this year. So it will be interesting to see how PNC integrates these BBVA locations. But a pretty large deal happening in the bank land space this morning.

ZACK GUZMAN: Yeah, and Brian, let me ask you this, too. Because I wondered how much-- I mean, stepping back, looking at the sector as a whole, how much it signals about, kind of, changing, I guess, appetite for some of these deals too? Because you look back to what we saw in 2019. Whether you want to look on a dollar basis or deal basis, we're down considerably-- I mean, one fifth of the overall deal size, in terms of since last year. So how do you, I guess, look at this deal, and say, maybe some things are changing that?

BRIAN CHEUNG: Yeah, well, there's no doubt that the catalyst for bank mergers has really stopped in this pandemic. A lot of these stocks again getting battered. They don't have the currency to do any sort of stock transactions.

But as you mentioned, 92 deal announcements in the bank's space, since the beginning of this year. If you compare that to the same period of time in 2019, there were 219 deals more than double. So that's definitely been part of the catalyst here.

I think the larger story is that banks are trying to chase scale out of necessity in an environment where interest rates are so. And the yield curve is so flat. The only way that you can really make sure that you can grow your top line revenue is by having a larger loan pipeline, which requires you to go out into the private market right now and buy essentially another bank, which is what's happened here with PNC and BBVA.

For their part, PNC says that yes, this is going to cost a pretty penny for them. They've paid a premium on this. It's about 134% of BBVA's tangible book value.

But they also expect to incur the merger costs of just integrating these two businesses together. That's going to be almost a billion dollars-- $980 million. But for PNC's part, they say, this is going to be better for our long-term growth. It's also going to lead to cost savings, in excess of about $900 million. So when they do expect to close this deal in mid-2021, hopefully those types of savings ultimately end up happening, which would justify the pretty penny that they paid for this deal.

ZACK GUZMAN: All right, Brian Cheung bringing us the latest on a rarity, a big bank deal here to discuss today. I appreciate that.