Spain's BBVA is to sell its US business to PNC Financial Services Group for $11.6 billion in cash, in one of the biggest global banking deals this year.
The sale will further consolidate the US banking sector, but has also instantly prompted speculation BBVA could now use the cash to buy up a rival bank in its domestic market.
This is the second-largest US banking deal since the 2008 financial crisis and creates an American bank with nearly $560 billion of assets and a presence in two dozen states.
The move underscores how a loosening of financial regulations and lowering of corporate taxes under President Donald Trump has emboldened regional lenders to pursue scale through dealmaking.
PNC and BBVA had been in talks about a deal for the last few weeks.
They decided to press on following the outcome of the US presidential election because they believe the regulatory environment will not change with Democrat Joe Biden as president and the Republicans likely controlling the US Senate, sources told Reuters.
For BBVA, the transaction represents an unwinding of its $9.6 billion acquisition in 2007 of Compass Bancshares, which it turned into its US subsidiary.
Shares in BBVA jumped almost 16%, while shares in Spain's Sabadell rose 12.7% as the market bet that BBVA could use part the proceeds from the sale to buy its smaller Spanish rival, which has a current market capitalisation of €1.8 billion.
In September, two sources told Reuters that Sabadell had held informal talks about a possible tie-up, including with BBVA.
BBVA's Chairman Carlos Torres told analysts in call that the US deal would allow the lender to better deploy capital in its existing core market and improve its franchises, without giving specific names.
BBVA decided to retreat from the US market after its poor performance weighed on its stock, the sources said. The stock was down 36% year-to-date until Friday.
BBVA said it would keep some of its businesses in the US such as its brokerage and its stake in Propel Venture Partners, and would keep handling some of its wholesale banking operations from its New York office.
The transaction, expected to close in mid 2021, will give BBVA an extra 300 basis points of common equity tier one ratio and a €580m positive impact on its net profit, the Spanish bank said.
Investors had been growing impatient with BBVA's efforts to tackle the poor performance of its US business after the Spanish lender took a $1.5 billion writedown last year in its fourth-quarter earnings, blaming low interest rates and declining growth.
PNC said it was expecting the deal, which has been approved by the boards of both companies, to add about 21% to it earnings in 2022.
The deal comes about six months after PNC sold its 22.4% stake in mutual fund giant BlackRock for $14.2 billion.
PNC booked after-tax gains of $4.3 billion on the sale, which it will use to fund the deal with BBVA as it seeks to expand its footprint in the southwest of the US, the sources said.