BBVA Gets Even More Global

The Spanish bank's purchase of Compass Bancshares positions it among the top 20 banks in the U.S.

Banco Bilbao Vizcaya Argentaria Chairman Francisco González pledged at the Spanish bank's annual Christmas party in December that 2007 would be "BBVA's year," marked in part by the "culmination of several growth-enhancing projects." Just two months into the new year he's proving true to his word. On Feb. 16, BBVA said it will buy Birmingham, (Ala.)-based Compass Bancshares for $9.6 billion.

The purchase will solidify the position of Spain's No. 2 bank as one of the major regional players in Texas and other southern states, and will place BBVA (BBV) among the top 20 banks in the U.S. As BBVA aims to rely less on its core markets of Spain and Latin America, the deal "is an important advance in BBVA's strategy to move toward a more global financial group," the company said in a statement.

BBVA will offer Compass Bancshares (CBSS) investors $71.82 in cash or 2.8 BBVA shares for each Compass share. That's a 16% premium over Compass' trading average for the past 10 days. Compass shares were up $4 in U.S. trading on the news.

BBVA said it will finance the purchase by issuing 196 million new shares, worth about €3.7 billion ($4.86 billion). It is also selling its 5% stake in Spanish utility Iberdrola (IBDRF) for a gain of €844 million ($1.108 billion) to help pay for Compass.

Rising Tally?

The purchase is the latest in a three-year acquisition spree to shore up BBVA's position across the U.S. sunbelt. BBVA has snapped up Laredo National Bancshares, Texas Regional Bancshares, and other regional banks in a bid to win over the large Hispanic demographic and leverage cross-border business with Mexico, where it owns Bancomer, the country's biggest bank.

But buying Compass, which has branches in Texas, New Mexico, Alabama, Florida, Arizona, and Colorado, also signals that the Bilbao-based bank isn't just planning on wooing the Spanish-speaking population. Gaining a foothold in Colorado, especially, is evidence that "they have ambitions beyond a Hispanic market," says Christophe Ricetti, an analyst at IXIS Securities in Paris. "They are clearly trying to build a U.S. franchise."

Although Ricetti acknowledges that, at 3.4 times book value, the Compass purchase is costly, he thinks there are sufficient synergies to justify the price. Compass' net profit rose 15% in 2006, to $460 million.

Of bigger concern to analysts and investors was the planned capital increase, which comes on top of a €3 billion ($3.94 billion) capital increase announced in November.

BBVA's shares closed down 2.4% in Madrid trading. The bank's ADR fell 72 cents, or 2.7%, to $25.51 in mid-morning New York trading. Shares in Compass rose $3.98, or 6%, to $70.34. That follows a 7.4% gain on Feb. 15 amid speculation that the bank was a takeover target.

Solid Strategy

Still, few dispute BBVA is on the right track. The purchase will boost its number of U.S. branches to 622 and its assets in the country to $47 billion, the bank said.

BBVA, which posted a 24.4% gain in profit to €4.7 billion ($6.2 billion) in 2006, said it will generate around 10% of its profit in the U.S. following the acquisition. The purchase will have a positive impact on earnings in 2010, when total cost savings should reach around 7.1%, BBVA said.

"The group's acquisition strategy has remained focused and disciplined…and this is another deal that follows the parameters" of that plan, wrote George Karamanos, a London-based analyst with Keefe, Bruyette & Woods, in a note to investors.

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