BBVA expands in US with $9.6bn deal

BBVA expands in US with $9.6bn deal
By Mark Mulligan in Madrid
Copyright The Financial Times Limited 2007
Published: February 16 2007 09:23 | Last updated: February 17 2007 02:52


BBVA, Spain’s second-largest bank, on Friday stepped up its push into the US by unveiling an agreed $9.6bn (€7.3bn) acquisition of Compass Bancshares, a franchise covering six states.

News of the deal drew a cool reception from investors, who drove BBVA shares down 5 per cent in early trading. However, by the close on the Madrid stock exchange they had recovered ground, and finished down 2.7 per cent at €19.49.

Analysts voiced concerns about the dilutive effect of the planned €4bn capital increase to part-fund the deal, which comes just three months after a €3bn share issue aimed at improving the balance sheet.

There were also worries about the erosion of BBVA’s core capital ratios. “History shows investors should be wary of acquisitive companies,” UBS said.

However, Standard & Poor’s affirmed the bank’s credit ratings, highlighting BBVA’s “healthy asset quality, conservative risk management and a benign economic environment in most markets”.

Shareholders in the US retail bank, which is present in Alabama, New Mexico, Arizona, Florida, Colorado and Texas, will be offered 2.8 American Depositary Shares of BBVA per Compass share, or $71.82 in cash.

The Spanish bank said the offer represented a 16 per cent premium over Compass’s average trading price over the past 10 days. It will finance the purchase through the capital increase, supplemented with the proceeds of planned asset sales. Among these is the disposal of its 5 per cent stake in Iberdrola, Spain’s second-largest power group.

BBVA, described the deal as a “decisive step” in its US campaign, which until now has involved the purchase of small banking franchises in Texas.

In 2005 it paid $850m for Laredo National Bancshares and last year acquired State National Bancshares and Texas Regional Bancshares for $2.7bn.

Although its strategy was built on linking Mexican immigrants in Texas with its Bancomer operation in Mexico, chief executive Francisco González said on Friday BBVA saw scope for exporting the “universal” Spanish banking model to the US. “When it comes to offering full financial services, we are ahead of the pack, compared with our American peers,” he told the FT.

With $34.2bn in assets, 417 branches and profits last year of $460m, Compass is by far BBVA’s most important US – and global – purchase to date. The deal confirms its growing frustration with Europe, where in 2005 it abandoned plans to buy Banca Nazionale de Lavoro of Italy.