“The addition of RBC Bank provides PNC a great opportunity to enter attractive southeast markets in a way that will create value for our shareholders,” said James Rohr, PNC’s chairman and chief executive officer, in a statement. “This transaction represents an outstanding growth opportunity for PNC.” Citing “people with knowledge of the matter” as its sources, Bloomberg said over the weekend that PNC would buy RBC. The Wall Street Journal also reported the deal in advance of the official announcement. The purchase price is made up of cash and stock. PNC reportedly will also acquire credit assets from RBC, pushing the deal total to $3.62 billion, Bloomberg said. PNC, which is buying RBC from its parent firm, the Royal Bank of Canada, is already targeting cost savings, which could translate into job cuts. In the statement, PNC said it expected to “achieve a reduction of approximately $230 million, or 27 percent, of RBC Bank (USA) and SmartStreet the RBC HOA bank division non-interest expense through operational and administrative efficiency improvements.” This move will directly impact clients of the SmartStreet division of RBC through potential new fees for lockbox payment processing, Credit Card Merchant Services and analysis fees for checking accounts associated with PNC’s Treasury Service Division.
RBC has some $19 billion in assets and $16 billion in loans, according to the Journal.
The selling price for RBC is considerably higher than in May when The Journal quoted unnamed sources as saying a deal would total approximately $3 billion. RBC operates more than 420 branches across six states, including the Carolinas and Florida.
In addition to its headquarters in Raleigh, RBC operates a major support center in Rocky Mount. Royal Bank of Canada has been reported to be in the process of seeking a buyer for RBC over the past several months. PNC operates in 15 states and Washington, D.C.
RBC Bank has posted 11 consecutive quarterly losses as of March 31, with combined annual losses of about $3.1 billion since 2007, according to Federal Deposit Insurance Corp. filings. RBC Bank is the smallest of Royal Bank’s U.S. operations, which also include wealth management and RBC Capital Markets investment bank. Fred Solomon, a spokesman for PNC, said the bank doesn’t comment on “rumors or speculation.”
Katherine Gay, a spokeswoman for RBC, declined to comment. The Wall Street Journal also reported on Friday that the deal was done, with Pittsburgh-based PNC Financial outbidding BB&T Corp. (NYSE: BBT), of Winston-Salem. The business was expected to fetch as much as $3.7 billion, according to Peter Routledge, an analyst at National Bank Financial. “In U.S. personal and commercial banking you either go big or go home,” Routledge said in an interview Friday. “Royal has said they’re not going to make that big double-down bet, they’re going to go elsewhere, and I think that’s the right strategy.” A deal would help Pittsburgh-based PNC expand its retail business in the U.S. Southeast beyond a foothold in Florida. PNC Chief Executive Officer Jim Rohr, 62, told investors June 3 the bank is “disciplined” with acquisitions, preferring purchases that build 10 percent market share in “larger” cities.
“If you look at potentially what RBC’s unit could do for them, it expands PNC’s presence in an area that might be an attractive growth area,” said Craig Fehr, an analyst with Edward Jones & Co. in St. Louis, whose firm rates both banks a “buy.”
‘Rumors or Speculation’
Patrick McMahon, a spokesman for PNC, said the bank doesn’t comment on “rumors or speculation.” Katherine Gay, an RBC spokeswoman, declined to comment.
Royal Bank rose 80 cents Friday, or 1.46 percent, to C$55.54 in Toronto Stock Exchange trading.
PNC closed at $57.79 in New York Stock Exchange composite trading.
PNC has retail operations in 15 states and Washington D.C., including more than 2,500 branches, according to the bank’s website. The firm acquired National City Corp. in 2009 for about $3.9 billion in stock.
“PNC has really done a good job of righting the ship post credit crisis, they’ve done a good job of growing, and we’ve seen them in a short amount of time successfully integrate the NatCity deal,”
Fehr said. “They’ve shown the propensity for being able to digest some of these acquisitions.”
Centura Takeover
Royal Bank is seeking to sell RBC Bank a decade after it entered the U.S. with a $2.16 billion takeover of Centura Banks. Royal Bank is retreating from U.S. consumer lending as competitors Toronto-Dominion Bank and Bank of Montreal expand by acquiring troubled U.S. lenders. “We’ve long presumed Royal Bank had better opportunities to deploy capital in capital markets and wealth management, and that the U.S. retail or personal and commercial banking space wasn’t a good opportunity,” Routledge said from Toronto. “We thought it would be good news if they sold it and redeployed capital.”
Royal Bank spent at least $4.6 billion buying a network of U.S. consumer banks over the past decade, beginning with its 2001 takeover of Centura. Toronto-based Royal Bank’s last U.S. retail bank acquisition was the $1.6 billion takeover of Alabama National BanCorporation in 2008.
“They’ll have the discomfort of a little bit of a loss on the sale” of RBC Bank, said Routledge, who rates the bank “sector perform.”
Job Cuts
Royal Bank has spent two years reorganizing RBC Bank, which started after the lender said in May 2009 that it took a C$1 billion ($1 billion) writedown on the U.S. business. RBC Bank suffered losses due to impaired loans from homebuilders and other business clients during the U.S. subprime meltdown and financial crisis.
During restructuring, Royal Bank cut more than 1,000 jobs, replaced management, reduced ties to real estate and pared commercial lending.
Bloomberg news contributed to this report.
By WRAL , wire reports
