BNP Bank of the West sale

BNP Paribas has reached an agreement with BMO Financial Group for the sale of 100% of its retail & commercial banking activities in the United States conducted through its subsidiary Bank of the West, Inc. for a total consideration of 16.3 billion US dollars in cash (the "Transaction")

The Transaction is expected to formally close during the course of 2022, upon customary condition precedents, including the approval of the relevant antitrust and regulatory authorities.

The total agreed consideration amounts to 16.3 billion US dollars (equivalent to approximately 14.4 billion euros1), to be paid in cash at closing of the Transaction.  

The total consideration represents 1.72 times Bank of the West’s Tangible Book Value2 and 20.5% of
BNP Paribas market capitalisation1, while Bank of the West has contributed an average of approximately 5% to the Group pre-tax earnings over the last few years.

The Transaction will generate at closing a one-off capital gain (net of taxes) estimated at approximately
2.9 billion euros2 and a positive impact on BNP Paribas Group’s Common Equity Tier 1 (CET1) ratio of approximately 170 basis points2.

In terms of distribution policy to shareholders, the Group intends to make an extraordinary distribution in the form of share buy backs following the closing of the Transaction, to compensate the expected dilution of the Earning per share (“EPS”). As an indication, a share buy-back program of approximately 4 billion euros would fully neutralize the EPS dilution (under current assumptions and based on 17 December 2021 closing share price, that is 56.17 euros)2.

Net of these share buy-backs, the increase in the Group’s CET1 ratio would be of approximately 110 basis points2.

BNP Paribas intends to redeploy the remaining proceeds (equivalent to approximately 7 billion euros in capital release2), over time and in a very disciplined way, with the aim of improving long-term value creation through acceleration of organic growth, in particular in Europe, targeted investments in technologies and innovative business models, and bolt-on acquisitions in value-added businesses.

The Group will present its main strategic axes as part of the full-year 2021 results release on the 8 February 2022 and detail further its 2025 strategic plan in its Investor Day scheduled for the 14 March 2022.

BNP Paribas benefits from a long-term presence in the United-States, and notably a strong Corporate & Institutional Banking franchise, recently reinforced with the development of prime brokerage activities. The terms of the Transaction do not have any significant impact on these businesses. BNP Paribas will continue to consolidate and further develop its activities in the United States, as a strategic pillar to better serve global clients’ needs.

To strengthen its global connectivity and reinforce its One bank approach, which offers to corporates a seamless access to BNP Paribas’ global Corporate Banking platform, the Group will enter into long-term distribution agreements with BMO, BNP Paribas’ new partner for the purpose of cross-border cooperation and for the provision of Equipment Finance and Cash Management solutions in North America.

Jean-Laurent Bonnafé, BNP Paribas Group Director and Chief Executive Officer, said: “This is a value accretive transaction for all sides, which emphasizes the quality of Bank of the West franchise. In the name of BNP Paribas, I would like to deeply thank all Bank of the West teams for their achievements and contributions for the development of the Bank. Moreover, BNP Paribas’ set-up in the United States remains a strategic pillar for the development of our Corporate and Institutional franchise. With this transaction,
BNP Paribas also reaffirms its commitment to deliver value to all its stakeholders.”

1. As of December 17, 2021 with a EUR/USD exchange rate of 1.13.
2. The preliminary estimation of the impact on Common Equity Tier 1 and on the financial elements was made taking into consideration the financial statements as of September 30, 2021, the latest analysts’ consensus and a EUR/USD exchange rate of 1.13. These estimations will vary from the date of this disclosure up to the date of closing of the Transaction due to, among other circumstances and assumptions, changes in the book value, risk weighted assets and financial results of the companies included in the Transaction and changes in the EUR/USD exchange rate.

Goldman Sachs Bank Europe and J.P. Morgan Securities plc served as financial advisors to BNP Paribas SA, also supported by BNP Paribas Corporate Finance, and Sullivan & Cromwell LLP served as legal advisor.

LONDON, Nov 15 (Reuters) - BNP Paribas (BNPP.PA) is working with advisers to assess a sale of its U.S. arm Bank of the West as it seeks to retreat from the American retail banking market after struggling to compete with larger and better capitalised rivals, sources told Reuters.

The French lender, which overtook Britain's HSBC (HSBA.L) last year to become Europe's largest bank by assets, is looking to part ways with its San Francisco-based retail banking subsidiary in a deal that could value it at about $15 billion, three sources with knowledge of the matter said.

JPMorgan (JPM.N) and Goldman Sachs (GS.N) are preparing the business for a sale and have been working closely with BNP to gauge interest from prospective bidders, the sources said.

Discussions are still at an early stage and no deal is certain, they said.

Shares in BNP rose as much as 5.5% to 62.55 euros after the Reuters story and were 3.4% higher in early afternoon trading.

JPMorgan was first to secure a mandate from BNP during the summer, one of the sources said, having recently represented Spain's BBVA (BBVA.MC) in the $11.6 billion sale of its U.S. operations to PNC Financial Services Group Inc (PNC.N) - a deal BNP hopes to replicate.

BNP was not immediately available for comment. JPMorgan and Goldman Sachs declined to comment.

Bank of the West, with $99.2 billion of assets as of June 30, ranks as BNP's biggest business outside Europe.

A sale would give Chief Executive Jean-Laurent Bonnafé cash to invest on the continent where the European Central Bank is urging the region's lenders to merge as they have lagged their U.S. and Chinese rivals in profitability and size since the 2008 financial crisis, the sources said.

While centred on California, the 147-year old Bank of the West has retail operations in 19 U.S. West and Midwest states. It was bought by BNP in 1979 and subsequently merged with its local subsidiary, the French Bank of California (FBC).

Bank of the West sells a range of retail banking products and services to individuals, small businesses and corporate clients with a strong presence in specialised financing areas, such as agribusiness and farming.

BIDDING FIELD

To secure a successful sale of the business, BNP would have to overcome a number of challenges, the sources noted.

U.S. President Joe Biden has called for more scrutiny of bank mergers, while the departure of Randal Quarles as the Federal Reserve's vice chair for supervision and uncertainty over Jerome Powell's future as chair has cast doubt on banking consolidation.

Dealmakers, who spoke with Reuters on condition of anonymity, said this leadership void has created an effective hold on the approval of large bank acquisitions by the Fed, making it difficult for bank boards to sanction new transactions.

"BNP needs to find a partner who's willing to fight hard to win regulatory approval," the first source said.

The French lender has long seen PNC as an ideal suitor for Bank of the West, and its sale efforts were emboldened by the purchase price PNC paid for BBVA's U.S. business, valuing it at 20 times its 2019 earnings, the source said.

But with PNC now busy integrating its latest acquisition, BNP is left with a small pool of potential buyers, which include Canadian banks and some regional U.S. players.

Toronto-Dominion Bank (TD.TO) and Bank of Montreal (BMO.TO) are seen as possible suitors alongside Ohio-based KeyCorp (KEY.N), two of the sources said.

TD Bank, with retail operations along the U.S. East Coast, has proceeds available from the $26 billion sale of broker-dealer TD Ameriprise to Charles Schwab Corp (SCHW.N). Chief Executive Bharat Masrani said in May the bank was open for M&A opportunities which made financial sense, with a focus on its existing footprint.

BMO executives have expressed a desire to grow the bank's U.S. presence and would be in a position to add cash to finance a possible deal while KeyCorp would instead need to pursue an all-stock transaction.

Royal Bank of Canada (RY.TO) - which owns City National Bank, the ninth-largest bank in California by deposits - could also express interest in Bank of the West, one of the sources said.

PNC and KeyCorp declined to comment while TD, BMO and RBC were not immediately available.

Reporting by Pamela Barbaglia in London and David French in New York; Editing by Emelia Sithole-Matarise

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