PNB shelves merger talks with Ayala-led bank

Tycoon Lucio Tan-led Philippine National Bank is shelving merger talks with Bank of the Philippine Islands until such time it has grown big enough to enter a “merger of equals” with leading banks.

The merger with affiliate Allied Bank Corp., however, has been fleshed out and the full integration is expected to be completed in two years at a cost of about P1.5 billion.

“Even with this inevitable cost, and with the revenue enhancements arising from the merger synergies and the recently crafted five-year strategic plan for the merged bank, we look forward to strengthening further our profitability position, translating into an ROE (return on equity) of 13-15 percent in the next three years,” PNB president Omar Mier said during the bank’s stockholders meeting on Tuesday.

Consequently, Mier said the PNB leadership was expecting an eventual re-rating of PNB’s stock price to a price-to-book value of 1.8 to 2.1x.  “We should start considering dividend declarations by the end of the fiscal year 2015,” Mier said.

“The deal with BPI did not push through and the reason is that we were at a disadvantage in terms of price-to-book,” he said during a media briefing after the stockholders meeting.

Based on earlier reports, the merger and acquisition (M&A) framework that was considered would have allowed BPI to take over PNB at a price-to-book value of about 1.6x.  BPI, the country’s most valuable bank, has been trading at more than thrice its book value.

Mier said PNB would have to grow to such a level that its valuation would be comparable with the those of the big banks.  He said PNB could take a look at M&A options “when we are equals with other banks” which he said would be three to four years down the line.

Under the bank’s five-year strategy, PNB has set as guidance a compounded annual growth rate (CAGR) of at least 15 percent which would effectively double its net profit in five years, Mier said.  Also part of the plan is to grow its loan book by an average CAGR of 18 percent in the next five years.

But among the immediate initiatives of the PNB for 2013, which the first year of its merger with Allied Bank, is the refinancing of P10.5 billion worth of maturing tier 2 debt notes through the issuance of long-term negotiable certificates of deposits (LTNCDs).

He said PNB was awaiting the approval of the Bangko Sentral ng Pilipinas for the issuance of the initial batch of LNTCDs worth P5 billion. After that, the bank intends to issue another P5 billion.

PNB executive vice president and head of treasury Horacio Cebrero III said the bank would likely offer LTNCDs with a tenor of 5.5 years.

At a capital adequacy ratio of 18 percent at present, he said PNB had “more than enough” buffer to comply with Basel 3 requirements.