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Banco Bilbao to Divest Stake in BBVA Chile to Scotiabank

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Recently, Banco Bilbao Vizcaya Argentaria (BBVA - Free Report) agreed to divest its 68.19% stake in BBVA Chile and the life insurance business to The Bank of Nova Scotia (BNS - Free Report) . Banco Bilbao expects the transaction to result in net capital gain of about €640 million and raise its common equity tier 1 capital ratio by 50 basis points.

The main reason for Banco Bilbao’s decision to exit the Chile market is intense competition in the region and consequent impact on profits. The bank exists on the policy of being among the “top three players” in the regions where it has operations. However, in Chile, it is ranked as seventh largest bank by assets, hence it is divesting BBVA Chile.

Scotiabank had made a binding offer of $2.2 million to Banco Bilbao late last month, with a view to become the third largest private sector bank in the country. It will be making a tender offer to buy the remaining shares of BBVA Chile soon. The bank plans to merge the operations of BBVA Chile with that of Scotiabank Chile.

Brian Porter, CEO of Scotiabank, said, "BBVA Chile has a proven track record of providing leading financial products and services to customers across the country and this transaction demonstrates excellent synergy between both banks with customer-centric cultures."

Remaining Stake in BBVA Chile

The Said family currently owns 31.62% stake in BBVA Chile. It had a Right of First Refusal for its shares in the company and an option to exercise tag-along rights. This right allowed the family to sell its shares in BBVA Chile to Scotiabank on the same terms offered to BBVA.

Following Scotiabank’s offer in November, the Said family waived its Right of First Refusal. In fact, the family is interested in remaining part of the Chilean business and would like to invest nearly $500 million to own up to 25% of the merged business.

Our Take

Banco Bilbao also agreed to sell 80% of its Spanish real estate business earlier to a subsidiary of Cerberus Capital Management for €4 billion through a joint venture. The bank’s efforts to streamline businesses will support revenue growth and drive operational efficiency.

Shares of Banco Bilbao have gained 25.4% year to date, outperforming the 19.2% growth of the industry it belongs to.

Currently, the stock carries a Zacks Rank #3 (Hold).

Key Picks 

A couple of foreign banks worth considering are Bank of N.T. Butterfield & Son Limited (NTB - Free Report) and Credicorp Ltd (BAP - Free Report) . Both these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bank of N.T. Butterfield & Son’s Zacks Consensus Estimate for current-year earnings has been revised 2.2% upward in the last 60 days. The company’s share price has risen almost 22% year to date.

Credicorp’s current-year earnings estimates have been revised nearly 1% upward over the last 60 days. Also, its shares have gained 32.5% so far this year.

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