The WSJ is reporting that PNC is set to acquire BBVA's US operations. Makes a lot of sense for PNC. They have little to no retail overlap, and it should help bolster PNC's commercial banking business. PNC has made it known it wanted to expand its US presence since exiting its position in Blackrock and generating a bag of cash in May.
I think the bigger story here is that BBVA is the latest foreign bank to significantly scale back or exit its US operations altogether. I expect this to continue. I don't think US regulators make it easy for foreign banks to scale their operations here and compete with the larger players. Just in the last few years, we have seen HSBC, RBS, Deutsche, Barclays, CIBC and others cut or exit some/most of their US businesses. Many of the other major foreign players (Santander, TD, RBC) have had a rough go in the US as well. You could argue the BMO/Harris deal has been the most successful of the bunch. I think this is the first domino to fall and you will see similar exits by foreign banks. MUFG, BNP, SMBC, Santander might be names to watch.
I also think we are about to see a huge consolidation among US regional banks. SunTrust-BB&T really kicked this off last year. There are just far too many regional commercial banks in the US. The banking industry is way too fragmented and has been far too slow to consolidate since the financial crisis. You can count the number of significant mergers since 2008 on one hand. I read a MarketWatch article that said there are over 30 banks between $50 and $250 billion of assets in the US. The sustained low interest rates over the last few years are killing these regional players. Would expect a lot of consolidation here... Names to watch: US Bank, Fifth Third, KeyBank, Capital One, M&T.
Both of these ideas have danced out there over the last 5-10 years. I think we will finally see it happen.
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BBVA securities was excluded, so only PNC’s retail operations are being bolstered by the acquisition
This is correct. But it matters because you will start to see a rapid consolidation of regional banks, which WILL include capital markets desks.
hmm deleting all your comments on PNC posts who could you be
You are clearly more informed on the subject than I am, so I think it would be great to hear your opinion on a few points regarding consolidation in the industry.
The SunTrust-BB&T merger was announced over 20 months ago and many people expected significant consolidation among larger regionals/super regionals to follow shortly after, but that hasn't happened yet. I get that valuations might not have been very attractive last year, but they're not exactly more attractive now (looking at the stock market as a proxy, which I know is not ideal).
I do agree that foreign banks are likely to continue exiting their US retail operations, but what makes you believe that those deals would also include their Corporate & Investment Banking services? Consolidation in retail banking makes perfect sense given the shift in industry dynamics towards online banking, but I don't see the same impact happening on the C&IB side, but again I'm not exactly well informed on the space.
Finally, you mention consolidation among US-Based regionals/super regionals, I'd be interested to hear who you believe would buy those banks. US Bank is huge and it doesn't appear the Big 3 would be interested in acquiring a $500 billion bank. The same can be said for Capital One with assets approaching $400 billion. Key and Fifth Third are always thrown around in potential M&A talks, but nothing has materialized yet and I also believe they are far too large to be acquire by none-big 3 banks, and again, I struggle to see why the big 3 would be interested in a Key or Fifth Third. I definitely see consolidation continuing with sub-$10 billion banks and possibly picking up with sub-$50 billion banks, but what makes you believe that it will pick up with $100+ billion banks that are focusing more on growing their C&IB service and appear to be content with their retail operations?
Here are my thoughts on the foreign side first:
I should have mentioned that I see most of the foreign exits to be on the retail/commercial side. You will see it some on the CIB side as well. The main reason is that the European banks have been hammered by low interest rates over the last 10 years and have consequently run on low margins for years now. Look at the trading levels of the Euro banks. Most trade at half of their book value. Many US banks are 1 to 1. The coronavirus has been the final squeeze for a lot of these firms and most are restructuring like crazy as of late. Restructuring will mean cutting unprofitable business lines and returning to core markets. For some, this means US Investment Banking and others not so much. Outside of a few cycles, most Euro IBs have not been profitable in the US.
Another point to consider is the rapid consolidation going on in Europe and what that means for Euro bank business in the US. BBVA is a perfect example. In September, CaixaBank and Bankia announced a merger, creating the largest bank in Spain. This left the other major players - BBVA, Santander, Sabadell - pointing at each other and thinking who goes next, as all 3 are getting hammered in 2020. BBVA did not want to get left out of the arms race (and significantly squeezed), so it sold its US business to position its self for an acquisition of Sabadell. You may see more of this happen around Europe and it consequently affecting US operations.
I'm not sure who will do what but some Euro banks will certainly make more US cuts as the restructuring continues. Just a few things I am seeing:
-ABN Amro is shredding its US Corporate & Investment Bank business completely
-Last year Deutsche shredded much of its US Investment Bank due to profitability issues (Largely in its Equities biz)
-HSBC's profits from its US investment banking business fell 20% in 2019 and continued in 2020. The firm is cutting its US operation by ~50%. It is also slashing a large part of its global workforce in general and refocusing on its Asian markets
-Credit Suisse's US investment bank posted a pre-tax loss in 2019 and is headed that way again in 2020. CS sold its PWM division to Wells Fargo a couple of years ago due to profitability issues
-Barclays is dealing with an outspoken activist investor (Edward Bramson) who is putting a lot of pressure on the bank to shrink its Investment Bank (particularly in the US) and focus on its retail banking unit in the UK. Cuts are expected to be seen in Barclay's trading business
-BNP and Santander's US CIB business continues to be unprofitable. I think they are desperate for an exit despite what they have said in recent months. I think this BBVA deal motivates them to make a move
Thank you for the detailed reply. I must admit I haven’t paid much attention to the banking scene outside the US, so this was definitely insightful. Looking forward to your reply on the domestic side as well.
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Haha I remember DB had one good quarter or something, and they posted a screenshot of their income statement on LinkedIn.
The vast majority of these banks are incompetent. Their US “investment banking” is just lending billions at libor plus 50bps to be given pitty capital market fee allocations. These are mostly decades long hangovers from cocaine influenced grandiose expansion strategies.
No one is arguing that these are good investment bank platforms. No doubt the foreign and domestic names mentioned are primarily corporate lenders / retail banks. But I cover the sector and think it is a fascinating development.
I think Rothschild has been trying to expand in the US.
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