Banco Bilbao Vizcaya Argentaria SA took a significant step forward in its ambitions to become a major financial services player along the U.S.-Mexico border with a pair of deals for Texas banks.
On Monday it said it would pay about $2.1 billion for the $6.6 billion-asset Texas Regional Bancshares Inc. of McAllen, which is near the border. BBVA also said it would pay $480 million to acquire the $1.7 billion-asset State National Bancshares Inc. of Fort Worth.
The two deals would triple the $497 billion-asset Madrid company's operations in the state, where it said it would have $12.6 billion of assets, $10.1 billion of deposits, a $7.3 billion loan portfolio, and 166 branches. Of those, 74 would come from Texas Regional, the holding company for Texas State Bank. State National has 42 branches, in Texas and New Mexico.
With an estimated deposit share of 2.4% after the acquisitions, BBVA, currently the 22nd-largest banking company in the state, could displace Washington Mutual Inc. as the sixth-largest, according to the Federal Deposit Insurance Corp.'s latest data. JPMorgan Chase & Co. holds the top spot there, followed by Bank of America Corp., Countrywide Financial Corp., and Wells Fargo & Co.
Texas Regional's deal puts to rest some questions analysts had about the company, such as how it would handle a transition once its 75-year-old chairman and chief executive, Glen E. Roney, was ready to hand over the reins.
The deal also included an unusual contingency payment related to one of what analysts said were a number of significant nonperforming loans on Texas Regional's books. BBVA said that, depending on the "resolution of a large nonperforming loan relationship prior to closing the transaction," Texas Regional shareholders could collect a dividend of up to 10 cents a share, in addition to the $38.90 a share in cash they would get in the deal.
That payment provision indicated to some on Wall Street that BBVA was less inclined to go along with Texas Regional's preference to work through problem loans.
Texas Regional has had "several sizable credits on for four to five quarters now," said Barry McCarver, who covers the company for Stephens Inc. "There doesn't seem to be a near-term end to that. They're choosing to work through these credits with these clients, rather than choosing to sell them. That was hampering their earnings."
BBVA most likely will not "want to carry those loans," Mr. McCarver said. "So to the extent that Texas Regional can get those relations put to bed before the deal closes, there is an earnout to the shareholders."
On the other hand, Don E. Cosby, the chief financial officer of State National, said it had to be talked into selling. BBVA "approached us, and we initially said we weren't interested," he said. "They continued to pursue us with increasing financial offers, and at some point that became compelling."
In the last two years BBVA has made two U.S. acquisitions to target the Hispanic market. It operates in 32 countries and serves 35 million customers. Its U.S. operations include a commercial bank in Puerto Rico, BBVA Puerto Rico; a money transfer business, Bancomer Transfer Services; and BBVA Finanzia USA, a consumer finance and credit card business.
Last year it bought the privately held Laredo National Bancshares Inc. of Texas for $850 million in cash. The $3.4 billion-asset Laredo had 35 branches near the Mexican border and had long focused on the Hispanic market.
In 2004, BBVA purchased the $80 million-asset, six-branch Valley Bank of Moreno Valley, Calif., for $16.7 million. That bank, which was renamed BBVA Bancomer USA, targets immigrants.
BBVA had said that Laredo National's ties with businesses along the border would give it access to Mexican-Americans born and raised in this country, while Valley Bank and the money transfer unit target recent immigrants.
A BBVA executive did not return calls for comment by press time. In a press release, Jose Maria Garcia Meyer-Dohner, the chief executive of its U.S. business, said the Texas Regional deal would be "a significant step in the execution of BBVA's U.S. strategy" and would gives be "a strong position in several important markets in Texas that are key to the growth of BBVA USA."
Both Texas Regional and State National would retain their management teams.
Brent Christ, an analyst at Swiss Reinsurance Co.'s Fox-Pitt, Kelton Inc., who covers Texas Regional, said its deal with BBVA is a positive one not only for Texas Regional shareholders, but also for investors in other area banking companies.
Texas Regional is located in an attractive state, and the deal "highlights the scarcity value of some of remaining Texas franchises," he said. "It's a just a market that's growing a lot faster than a lot of other regions in the country. A lot of banks are interested in getting in the market or expanding in the market."
The deal makes sense for BBVA, because the core of Texas Regional's operations are along the border of Mexico, and BBVA has "shown an interest in this marketplace and the cross-border type of geographies," Mr. Christ said.
Keefe, Bruyette & Woods Inc. was Texas Regional's investment adviser for its transaction. Credit Suisse Group advised State National. Morgan Stanley advised BBVA on both deals.
Texas National said its deal is expected to close in the fourth quarter. State National said its deal is expected to close in the first quarter.
Shares of Texas Regional rose 10.2%, closing at $37.70. Shares of State National rose 19.5%, to $37.17.
