UPDATE: May 17, 2021: PNC has received the Federal Reserve's sign-off on its plan to acquire BBVA's U.S. arm, the Pittsburgh-based lender said Friday in a press release. That represents the last regulatory hurdle ahead of the deal's expected June 1 closing, the bank said.

"In light of the merger approval framework given to us by Congress, I supported today's Board action for several reasons, chief among them improved financial stability, greater competition in the financial system, and the firm's strong performance in support of its communities," Randal Quarles, the Fed's vice chair for supervision, said in a statement posted on the Fed's website.   

Not every regulator was as enthusiastic. Fed Gov. Lael Brainard stressed caution in her statement on the deal. "The increases in banking concentration in the $250 [billion] to $700 billion asset size category, where common-sense safeguards have been weakened, raise some concerns, and it might be helpful to undertake a broader review of our framework, since we know from experience even noncomplex banks in this size range can pose risk to the financial system when they encounter financial distress," Brainard wrote in a Friday statement.

PNC CEO Bill Demchak, for his part, said he was "pleased" for the chance to "accelerate our growth trajectory and drive long-term shareholder value."

"With common cultures and values and a shared commitment to our customers, employees and communities, we look forward to bringing PNC's industry-leading technology and innovative products and services to new markets and clients," he said Friday.

Dive Brief:

• PNC agreed to buy the U.S. arm of Spanish lender BBVA for $11.6 billion, the Pittsburgh-based lender said in a news release Monday. The all-cash deal, expected to close in mid-2021, would create the fifth-largest bank in the country by assets.
• The acquisition would give PNC a presence in 29 of the nation's 30 largest markets, according to the release, and establish a foothold in Texas, California, Florida and Arizona, where it previously lacked retail operations.
• PNC had teased its growth ambitions since May, when it sold its $17 billion stake in asset manager BlackRock. PNC CEO William Demchak in June said an acquisition could help the bank cross the $700 billion-asset threshold.

Dive Insight:

The BBVA deal won't get PNC to $700 billion. But the addition of the $101 billion-asset Alabama-based arm of the Spanish bank will push PNC to $556 billion, according to June figures from the Federal Reserve — vaulting it past U.S. Bank and Truist in size.

The $11.6 billion deal is the largest for the U.S. banking industry since the $28 billion merger of SunTrust and BB&T that created Truist in 2019.

Buying BBVA's U.S. operations will boost PNC's earnings by about 21% in 2022 and generate more than $900 million of cost savings related to the overlap of global management and regulatory costs, the Pittsburgh-based bank said Monday.

But the deal could be seen as a win for BBVA, too. The bank took a $2.2 billion goodwill impairment charge on its U.S. business in this year's first quarter.

"It makes sense to divest in the U.S. because others could do better, we also believe we can grow in places where we could do better," Carlos Torres Vila, BBVA's executive chairman, told analysts, according to Reuters.

BBVA's retreat from the U.S. follows similar moves from other European lenders such as HSBC, which in February said it aimed to reduce its U.S. branch network by 30%. A source told the Financial Times as early as May that the U.S. arm of a European bank such as HSBC or Santander could be an acquisition target for PNC.

Demchak characterized the BBVA deal as a "substitution" for the investment PNC had had in BlackRock.

"We've managed to effectively trade the BlackRock ownership stake we had for a franchise that takes us coast to coast," he told the Financial Times. "For BBVA, they have a lot of capital in the USA and invested heavily in technology, but could not bring [their operation] to scale and were in effect under-earning. We're a better owner of the asset — we have lots of synergies and lots of products they don't have."

Extending PNC's national presence would be the "first, second and third objective" of any deal, Demchak said in September, according to The Wall Street Journal.

To that end, BBVA has about 640 U.S. branches — about half of which are in Texas, and another quarter are in what would be new territory for PNC: California, Florida and Arizona, American Banker reported.

PNC had been eyeing expansion in Texas for some time. The bank operates "solutions centers" in Dallas and Houston — what Bloomberg Intelligence analyst Herman Chan on Sunday called a "branch-lite model."

More than other banks of its size, PNC, by its own words, has been "aggressive" in shrinking its branch footprint. The bank's retail transformation manager, Dawn Fabian, said last year the bank aimed to consolidate 80 to 100 branches per year over the next five years.

The coronavirus pandemic has only hastened that strategy. Demchak said in September it appeared on track to close almost 160 branches this year and 120 more in 2021.

The transaction excludes broker-dealer BBVA Securities and the Spanish bank's New York branch, which will continue to provide corporate and investment banking services to corporate clients, Bloomberg reported. It also excludes the representative office in San Francisco and fintech investment fund Propel Venture Partners.

The deal wouldn't be PNC's first acquisition of the U.S. arm of a foreign bank. It agreed to buy Royal Bank of Canada's U.S. operations and card business in 2011 for $3.6 billion. Since the 2007-08 financial crisis, PNC also bought Cleveland-based National City in 2008.

That time frame also marked BBVA's stateside expansion. The Spanish lender bought Compass Bancshares — which would become BBVA USA — for $9.6 billion in 2007.

PNC and BBVA had been in talks about a deal for the last few weeks, and decided to continue after the U.S. election was decided because they thought the regulatory environment would not change with a Democrat in the White House but Republicans likely holding a majority in the Senate, Reuters reported, citing anonymous sources.