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Banco Bilbao Divests 68% Share in BBVA Chile to Scotiabank

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Banco Bilbao Vizcaya Argentaria (BBVA - Free Report) recently closed a deal with Canada-based Bank of Nova Scotia (BNS - Free Report) , under which the former sold 68.19% of its shareholding in Banco Bilbao Vizcaya Argentaria, Chile, (BBVA Chile) to the latter. Moreover, the sale included Banco Bilbao’s stake in other Chilean subsidiaries which support the functioning of BBVA Chile.

Notably, acquiring the majority stake in BBVA Chile now makes Bank of Nova Scotia the fourth largest bank in Chile.

The remaining 31.62% shares of BBVA Chile are held by non-controlling majority shareholders, who had waived their first refusal and tag-along rights, thereby, allowing Banco Bilbao to sell its stake in the bank’s Chilean arm.

This transaction has been carried out for a consideration of $2.2 billion, which has been paid in cash to the divesting entity after obtaining all necessary regulatory approvals.

Further, Banco Bilbao, in its press release, had communicated that a capital gain of 640 million euros, net of taxes, shall accrue to the company as a result of the sale. In addition, it will benefit Banco Bilbao Group’s Common Equity Tier 1 Ratio by approximately 50 basis points (bps), which would be reflected in  in the bank’s third-quarter  (Sep ended)  financial results.

Background

Bank of Nova Scotia had made a binding offer to acquire Banco Bilbao’s stake in BBVA Chile in November 2017. The company declared this step as part of a strategy to expand its presence in Chile, which would help double Bank of Nova Scotia’s market share in the loans sector to 14%. This is also in line with the bank’s broader objective of investing in the rapidly growing Latin American markets. The acquisition shall affect Bank of Nova Scotia’s Common Equity Tier 1 Ratio by approximately 100 bps.

Our Take

Banco Bilbao’s strategic priority involves optimizing allocation of its capital to ensure profitability and sustainability. It is with this aim that the company signed the above-mentioned lucrative deal to divest its stake in the highly competitive Chilean market.  This will ensure better profitability for the company over the long run.

Banco Bilbao’s shares have lost around 16% in the past six months compared with the industry’s  decline of 15%.



The stock currently carries a Zacks Rank #5 (Strong Sell).

A couple of better-ranked foreign banks are Banco De Chile (BCH - Free Report) and Bank of Montreal (BMO - Free Report) . Both stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Banco De Chile’s 2018 earnings estimates have been revised 4.4% upward over the last 60 days. Also, its shares have gained 17.6% in a year’s time.

Bank of Montreal’s Zacks Consensus Estimate for current-year earnings has been revised 1.5% upward in the last 60 days. The company’s share price has risen almost 5% in the past year.

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