Oriental buys BBVA PR for $500M
The two companies announced the signing of a definitive agreement for the acquisition, with the sale price approximately a 3% premium to tangible book value. Closing of the transaction, which is subject to customary regulatory approvals, is targeted for before year end 2012.
The sale comes on the heels of recent downgrades of Madrid-based BBVA and other Spanish banks by the major ratings agencies ― Standard & Poor’s, Moody’s and Fitch ― amid a deep financial crisis in that European country.
In connection with the acquisition, Oriental announced that it has raised, in a private placement with institutional investors, $84 million of 8.75% non-cumulative convertible perpetual preferred stock, with a conversion price of $11.77, as a first step in raising an estimated $150 million in Tier 1 capital. Oriental intends to use its own excess capital to fund the balance of the purchase price.
“We are very pleased to announce this transaction, which combines two of the healthiest banks on the island to create a market leading bank that is strongly capitalized, locally controlled and totally focused on serving the needs of Puerto Rico businesses and consumers,” said Oriental President & CEO José Rafael Fernández.
Acquiring BBVA Puerto Rico meets Oriental’s long time goal of transforming into a bank with a bigger branch network, a larger and more diversified loan portfolio, greater core deposit funding, expanded customer base, and a smaller investment securities portfolio.”
“BBVA PR has a strong franchise that is highly complementary to Oriental’s. It also has an experienced, highly capable management team and staff that will fit perfectly with Oriental’s service and advisory oriented culture,” Fernández said
“For Puerto Rico, we believe this transaction further increases the strength of the local banking industry. It is well timed, as the Puerto Rico economy has stabilized and the fiscal situation has continued to improve,” he added.
The Oriental chief said the transaction offers the best way to efficiently use it excess capital to enhance financial performance, franchise and shareholder value. By replacing securities and borrowings with loans and deposits, it creates a unique opportunity to transform our balance sheet and significantly improve earnings predictability, he said.
“Ultimately, combining two healthy institutions will enable Oriental to continue to gain strength and leadership in the Puerto Rico market. The acquisition reaffirms our strong faith in Puerto Rico’s future and Oriental’s commitment to play an instrumental role in it,” Fernández concluded.
Oriental’s most recent acquisition was in 2010 when it successfully purchased and integrated Eurobank’s assets and liabilities in Puerto Rico from the FDIC.
Upon consummation of the acquisition, Oriental will be the second largest bank in Puerto Rico in terms of branches and core deposit funding, and the third largest in terms of assets. The resulting loan portfolio will be approximately a third each in commercial loans, residential mortgages, and consumer loans and leases, while the resulting securities portfolio will represent less than 40% of total earning assets.
As of March 31, 2012, BBVA PR had approximately $5.2 billion in assets, $3.7 billion in loans, $3.3 billion in deposits, 36 branches, and approximately 950 employees, which would add to Oriental’s $6.5 billion in assets, $1.7 billion in loans, $2.3 billion in deposits, 28 branches and approximately 720 employees, also as of March 31, 2012. BBVA PR has strong franchises in commercial and corporate banking, auto lending, retail banking, residential mortgage lending, insurance and wealth management.
The loan portfolio being acquired positively reflects BBVA PR having aggressively addressed problem assets. Non-performing loans have significantly declined and stabilized, non-performing asset formation also has declined significantly, and BBVA PR exhibits higher loan yields versus peers. As a result of additional credit marks that will be taken as part of the closing, Oriental anticipates having the highest levels of asset quality in the Puerto Rico market.
The deal further consolidates Puerto Rico’s banking industry, a trend most analysts see as positive.
Westernbank, R-G Premier Bank and Eurobank were all seized by the Federal Deposit Insurance Corp on April 30, 2010 and auctioned off to local competitors. Banco Popular de Puerto Rico picked up Westernbank; Scotiabank de Puerto Rico bought R-G Premier Bank and Oriental acquired Eurobank.
With Oriental’s purchase of BBVA’s Puerto Rico unit, the island is left with Banco Popular, FirstBank, Oriental, Doral, Scotiabank, Banco Santander and relative newcomer Banesco.
Banco Popular, Doral, FirstBank and Oriental are all based in San Juan. Scotiabank is headquartered in Canada. Santander will stand as the lone Spain-based bank operating in Puerto Rico. Venezuela-based Banesco established a branch and offices in Puerto Rico through its Florida subsidiary last year.