BPI nears completion of merger with Prudential Bank

Bank of the Philippine Islands (BPI) is nearing completion of its merger with mid-sized Prudential Bank in line with its goal to become a regional financial powerhouse.

In a disclosure to the Philippine Stock Exchange, BPI said it will acquire 91.6 percent of the outstanding shares of Prudential Bank through a share swap at an exchange ratio of 14.4939 BPI shares for every Prudential share.

BPI, with 709 branches, will be the surviving entity following completion of the merger with Prudential Bank, which has 187 branches in the country.

BPI shares closed one peso higher at P53.50 yesterday while Prudential was last traded on June 29 at P400.

Earlier this month, a total of 7.52 million Prudential shares were sold at P746.44 each in two block sales for a total consideration of P5.61 billion.

In the sale agreement, BPI bought 80 percent of Prudential from the Santos family, and later further increased its stake to 91.6 percent for P764.44 a share through a tender offering to minority shareholders.

With the merger, BPI will solidify its position as the country’s second largest bank with combined assets totaling P456.09 billion, compared to the industry’s top bank, Metropolitan Bank & Trust Co., which has assets totaling P474.52 billion, based on the latest central bank data.

BPI expects to gain at least 200,000 new accounts with the acquisition. Prudential posted a big jump in second quarter net profit to P227.5 million, from P45.9 million in the same period last year.

This is BPI’s first acquisition since its merger with Far East Bank and Trust Co. in 2000 and DBS Bank Philippines in 2001. Shortly before it signed the agreement to acquire Prudential, BPI also offered to buy the semi-private Philippine National Bank, one of the major banks in the country.

In view of its renewed financial strength, BPI has been on the lookout for some good acquisitions in order to bolster its position as a rising regional financial powerhouse.

BPI posted a net profit of P4.3 billion in the first half this year, mainly coming from higher interest and fee-based incomes. As a result, the bank’s return on equity rose to 15.9 percent from 13.3 percent during the second quarter last year, while return on assets stood at two percent compared to 1.8 percent last year.

BPI’s total assets amounted to P473.7 billion, of which total deposits comprised P366.9 billion. The bank’s total capital was at P55.9 billion. With a market capitalization of P108.8 billion, BPI is the highest capitalized bank listed in the Philippine Stock Exchange.

After disposing of P8.6 billion worth of non-performing loans (NPLs) last year, BPI again sold P2.4 billion worth of NPLs last July, thus improving considerably its overall financial condition.

The recent sale of the NPLs brought down its year-to-date NPL ratio to 4.6 percent from 5.6 percent last year, making BPI one of the strongest banks in the industry. As of end-June 2005, BPI had sold over P998 million worth of foreclosed properties versus P794 million last year. To complement this in-house initiative, the bank is also planning to put some properties in South Luzon in the auction block.

Philippine banks, saddled with around $9 billion in bad loans from the 1997 Asian financial crisis, are being urged by the central bank to consolidate and increase their capital to avoid possible shocks.