A number of recurring themes emerge from RBI readers’ 2021 forecasts such as the prospects for renewed US bank M&A activity.
The BB&T/SunTrust deal to form Truist, announced last February and concluded with final regulatory approval in November 2019 was expected to kick off a fresh wave of M&A activity in the US in 2020.
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And then came the pandemic. Deal making was dead.
Q2 2020 US bank M&A activity dead
Goldman Sachs reported that M&A activity at the conclusion of the second quarter was down 51% year-over-year across all sectors.
Bank M&A is hard enough at the best of times, but under lockdown conditions, best left to another day.
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By GlobalDataAnd then, just as 2020 looked as if it would go down in the record books as one to forget for bank deals, two major deals are announced.
Firstly, PNC agreed to acquire the US unit of BBVA, followed just ahead of Christmas with news of Huntington acquiring TCF.
On a personal note, BBVA US has been a joy to cover. It is one of the most innovative US retail banks, enjoying a strong reputation for customer centricity and an excellent record for product innovation and boasts a strong mobile banking offering. Its senior executives, much like BBVA in its Spanish domestic market, are also unfailingly helpful to the banking media.
With $104bn in assets and 637 branches across Texas, Alabama, Arizona, California, Colorado and New Mexico, BBVA represents a major challenge for PNC to execute the deal and achieve the projected synergies.
For example, PNC expects to achieve cost savings in excess of $900m, or 35% of BBVA USA’s 2022 estimated annual noninterest expense through operational and administrative efficiency improvements.
That is not impossible but will require management discipline and a fair wind to achieve. It is a challenging acquisition at the best of times-against the backdrop of the pandemic, it is even trickier.
Nor will PNC achieve easy wins by adopting the ‘rip branches out’ approach to cost saving. PNC plus BBVA does not result in massive branch overlap.
The newly enlarged PNC will have a coast-coast franchise and a presence in 29 of the largest 30 markets in the US.
Ranked by deposits, PNC plus BBVA will rank fifth in the US, behind only Bank of America, JPMorgan Chase, Wells Fargo and Citi and ahead of US Bank and Truist.
Huntington: a top 10 regional retail bank
And then, as this issue goes to press, news emerges of Huntington acquiring TCF to create a top 10 US regional retail bank.
Combining Huntington’s 839 branches with TCF’s 475 creates at least for now, the 8th largest US bank by branches.
By snapping up TCF, Huntington expands its branch network to include Minnesota, Colorado, Wisconsin and South Dakota and strengthens in presence in Chicago.
The all-stock Huntington Bank/TCF deal is valued at around $6bn and will result in the TCF brand being dropped.
Huntington plus TCF will have approximately $168bn in assets, $117bn in loans and $134bn in deposits. That means that as ranked by deposits, the newly enlarged Huntington will rank as the 18th largest US bank and the 10th largest regional retail bank, slotting in just behind Citizens and Keycorp.
Now comes the tricky part: Huntington forecasts that the deal will be 18% accretive to earnings per share in 2022, assuming the fully phased-in transaction cost synergies are achieved. Specifically, it estimates cost savings of the combined company are approximately $490m, or 37% of TCF’s noninterest expense.
The merger is expected to close in the second quarter of 2021; it will take a little longer before the market can judge if the sums add up and the cost savings targeted can actually be achieved.
Some welcome Christmas cheer
Not before time and just in time for press day, comes the welcome news that UK banks can resume paying dividends.
The Prudential Regulation Authority at the Bank of England has rightly concluded that the banks’ capital buffers are strong and that banks have made adequate provisions for Covid-related losses. The banks have kept to their side of the bargain, imposed when dividends were suspended back in March, and credit has continued to flow to consumers and UK business.
The largest five UK banks’ 3Q20 results showed resilient asset quality; the Bank of England (BoE) has cancelled stress tests and put much of its routine supervisory work on hold.
Doubtless, dividends will be modest in the new year but the return of dividends is at least a positive way to end a horrid year.
| US: LARGEST BANKS RANKED BY BRANCHES | |
| Wells Fargo | 5,413 |
| Chase | 4,980 |
| Bank of America | 4,254 |
| Truist | 2,921 |
| PNC plus BBVA | 2,844 |
| US Bank | 2,774 |
| Regions | 1,400 |
| Huntington plus TCF | 1,314 |
| Toronto Dominion | 1,227 |
| Fifth Third | 1,137 |
