BSP approves PNB’s 2nd capital-raising activity

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has approved the second capital-raising activity of the Philippine National Bank (PNB) this year, allowing the bank to retire maturing obligations and expand its capital base. The BSP said over the weekend that the Monetary Board had approved PNB's proposed lower tier-2 offer that was expected to raise up to P6 billion that the bank planned to use to improve its position. BSP deputy governor Nestor Espenilla Jr. told reporters that the MB approved the lower tier 2 offer at its meeting last week, shortly after the Lucio Tan-owned PNB wrapped up negotiations for its acquisition of Allied Banking Corporation, also owned by Tan. Espenilla said PNB had maturing tier 2 obligations in 2009 and part of the proceeds of the new offer would be used to pay off these obligations and part would be used by the bank to expand its capital. Espenilla said the BSP approved the offer since it would help PNB improve its overall profile and support the funding requirements for its integration with Allied Bank. PNB is embarking on a three-year integration plan as it absorbs Allied Bank following its decision to acquire 100 percent through a P25-billion share swap that was concluded last month. PNB had acquired Allied Bank through a share swap where PNB planned to issue 457 million new shares at P55 per share for a total of P25 billion. PNB planned to issue 140 PNB shares for every common share of ABC and 30.73 PNB shares for every preferred ABC share to shareholders of ABC. The merger was scheduled to be presented to the stockholders of both banks on June 24 this year and when approved, the new entity would become the country's 4th largest bank with a combined total asset of P388 billion. Once the transaction is approved by stockholders, PNB said the Lucio Tan Group would own 80.7 percent and the balance would be owned by the minority shareholders of ABC and PNB. ABC president Reynaldo Maclang said the boards of directors of PNB and ABC have nominated PNB president Omar Byron Mier to head the new entity as president and CEO although he said the full organizational impact was still unclear. After the merger, Mier said PNB would also a combined distribution network of 626 branches and 614 nationwide, making it the third largest private domestic bank in terms of branches. "In addition, we will have the largest international footprint across the AsiaPacific region, Europe, the Middle East and North America," Mier said. PNB would then have a total of 124 foreign offices, branches and subsidiaries abroad. Mier said the combined capabilities of PNB and AB would bring down the bank's cost of funds to as low as 2.5 percent, way below the industry average of about 3 percent. "In about three to five years, we would have realized a combined cost savings of 10 to 12 percent," Mier said, adding that PNB's capital adequacy ratio would also improve to 19 to 20 percent. "This will be, if not the highest, one of the highest CAR in the industry," he said. He said the CAR already factored in the issuance of lower tier 2 capital by both PNB (P3 billion) and AB (P4.5 billion) this year. The merger would affect over 9,000 employees of both banks but Mier said the resulting retrenchment was not likely to be significant since the individual businesses of the two banks did not overlap. Mier said PNB and AB have formed a review committee that would take up the integration plan in the next two months but he said that typical mergers shed about 20 percent of the total workforce. "We've initially identified 10 to 15 locations where we are both located, for example," he said. "We are not giving up any of our branches, we will just relocate them. We don't know what the numbers are right now." Mier said the merger of the two banks would significantly improve PNB's portfolio with its non-performing ratio expected to go down to single-digit levels within the next two years. However, Mier ruled out the possibility of any more acquisition for PNB, saying that it would take at least three to five years for the bank to digest the integration process with ABC. Initially, Mier said he expected the total cost of integration to reach between P1 and P1.2 billion that would affect the bank's bottom line in the next two years. - GMANews.TV