PNC Financial Services Group Inc PNC.N is nearing an all-cash deal to buy the U.S. business of Spanish lender BBVA BBVA.MC for more than $10 billion, further consolidating the U.S. banking sector, people familiar with the matter said on Sunday.
It would be the second-largest U.S. banking deal since the 2008 financial crisis and create a U.S. bank with nearly $560 billion of assets and a presence in two dozen states.
The move underscores how a loosening of financial regulations and lowering of corporate taxes under President Donald Trump has emboldened regional lenders to pursue scale through dealmaking, as they compete with bigger players such as JPMorgan Chase & Co JPM.N and Wells Fargo & Co WFC.N.
PNC and BBVA have been in talks about a deal for the last few weeks, and decided to press on following the outcome of the Nov. 3 U.S. presidential election because they believe the regulatory environment will not change with Democrat Joe Biden as President and the Republicans likely controlling the U.S. Senate, the sources said.
PNC and BBVA did not immediately respond to requests for comment.
A deal would come about six months after PNC sold its 22.4% stake in mutual fund giant BlackRock Inc BLK.N for $14.2 billion. PNC booked after-tax gains of $4.3 billion on the sale, which it will use to fund the deal with BBVA as it seeks to expand its footprint in the southwest of the United States, the sources said.
The transaction would also represent an unwinding of BBVA’s $9.6 billion acquisition in 2007 of Compass Bancshares Inc, which it turned into its U.S. subsidiary. BBVA decided to retreat from the U.S. market after its poor performance weighed on its stock, the sources said. The stock is down 36% year-to-date.
If the negotiations between PNC and BBVA conclude successfully, a deal could be announced as early as Monday, the sources said.
The sources requested anonymity ahead of an official announcement. The Wall Street Journal first reported on the deal talks on Sunday.
Deal activity in the U.S. banking sector languished after the financial crisis, as stricter rules were imposed on lenders with more than $50 billion in assets and regulators barred banks with compliance issues from expanding.
Changes in U.S. tax laws under Trump, however, lowered corporate taxes, freeing up capital that banks could use to fund deals. Regulators started to approve more regional bank mergers, such as Cadence Bancorp’s CADE.N combination with State Bank Financial Corporation and Synovus Financial Corp’s SNV.N acquisition of FCB Financial Holdings.
The biggest banking deal since the 2008 financial crisis was the creation of Truist Financial Corp TFC.N last year through U.S. regional lender BB&T Corp’s $28 billion all-stock acquisition of SunTrust Banks Inc.
Another deal catalyst has been this year’s COVID-19 pandemic, which has driven more customers to bank online and prompted lenders to review their brick-and-mortar locations in a push to cut costs.
PNC, which has a market value of $52 billion, has traditionally been focused on the Mid-Atlantic, Midwest and Southeast U.S regions. The deal would give it a bigger presence in Texas and allow it to enter other sunbelt states such as Arizona and New Mexico.
Investors have been growing impatient with BBVA’s efforts to tackle the poor performance of its U.S. business after the Spanish lender took a $1.5 billion writedown in its fourth-quarter 2019 earnings, blaming low interest rates and declining growth.
BBVA CEO Onur Genç changed tack recently, stating he was open to sales of businesses if it created value for shareholders.