Cautious Optimism
The coronavirus stalled bank M&A, but a few institutions are finding ways to get deals done — including PNC Financial Services Group, which agreed to acquire Banco Bilbao Vizcaya Argentaria’s U.S. operations earlier this week.
With a price of $11.6 billion in cold, hard cash, it’s the biggest transaction since BB&T Corp. and SunTrust Banks combined to create Truist Financial Corp.
The acquisition gives the Pittsburgh-based bank a national platform that spans into California, giving it immediate scale in 29 of the top 30 U.S. metropolitan areas.
The announcement serendipitously coincides with the release of Bank Director’s
2021 Bank M&A Survey, sponsored by Crowe LLP — though I’d exercise caution in viewing that deal as an indicator for the industry.
Compared to last year’s survey, fewer banks expect to make an acquisition in 2021. The top barriers to deal making boil down to credit quality and price — the expectations of target banks, demands on the acquirer’s capital and current valuations.
For many, the M&A math doesn’t make sense right now, given the value of bank stocks. As of Nov. 17, the KBW Regional Banking Index had declined 20% since Jan. 2, 2020.
In contrast, PNC was in the unique position to pay cash for Houston-based BBVA USA Bancshares with the proceeds of the May sale of its stake in BlackRock.
In the investor call announcing the deal, Chairman and CEO William Demchak explained that BBVA USA had long been on PNC’s radar. Negotiations and due diligence spanned an unspecified but lengthy amount of time, and PNC dedicated 6 weeks and 350 employees to reviewing BBVA’s loan portfolio. But ultimately, he said, “[a] motivated seller, motivated buyer, cash in hand, [and] the right environment led to the deal.”
He later told the “Financial Times” that the deal was also fueled by PNC’s optimism that the worst of the crisis is over. “We have in effect put a floor under the worst [Covid-19] downside.”
Of course, PNC is an outlier. Most banks don’t have the cash for significant acquisitions, and credit remains uncertain.
The pandemic isn’t over yet, despite recent, welcome news of two potential vaccines.
More than half of our survey respondents expect a slow economic rebound in 2021, and 28% don’t believe it will return to pre-crisis levels next year. But despite the challenges they face, most believe their bank can weather this crisis.
An independent streak coupled with cautious optimism characterizes community banking — one that we’ve witnessed year after year in our surveys. Without motivated sellers, it’s harder to make a deal.
• Emily McCormick, vice president of research at Bank Director
