RBC seeking buyers for U.S. unit

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Royal Bank of Canada is seeking buyers for its U.S. retail banking operation a decade after entering the market, Bloomberg reported Thursday.

 

Royal Bank is getting advice from JPMorgan Chase & Co. on the potential sale of the RBC Bank unit, said Bloomberg, citing three people with knowledge of the talks

 

More to come …

 

(Courtesy of the Financial Post)

 

RBC is pulling out, yet BMO and TD are expanding. Lets see what happens.

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Royal Bank of Canada is a profit powerhouse north of the border, but its U.S. retail and commercial division has proven to be a major disappointment for Canada’s biggest bank. After a decade of challenges, the unit is said to be on the chopping block.

 

But that doesn’t mean the entire U.S. market is a failure for Canadian banks.

 

No one proves that better than Toronto-Dominion Bank. Even in the depths of the financial crisis, the U.S. operation churned out strong profits, boasting a full-year profit of just under $1-billion in 2010. In December, Bank of Montreal plunged into the U.S. market with its $4.1-billion (U.S.) acquisition of the Midwest’s Marshall and Illsley Bank.

 

Analysts say RBC and TD employed sharply different approaches in their U.S. forays. Chiefly, RBC viewed its U.S. operation as a portfolio investment, while TD devoted itself to making the U.S. division work.

 

At TD, “the management team put their credibility on the line and made an all-in investment,” said National Bank Financial analyst Peter Routledge. “They were either going to be hailed as successful investors and managers or ridiculed as failures.”

 

RBC’s strategy was much more piecemeal. After buying North Carolina-based Centura for $2.2-billion in 2001, the bank tacked on a few smaller deals, and then added on Alabama National Bancorporation for $1.6-billion in 2007. Neither acquisition was huge. In contrast, TD bought its first majority stake in Banknorth for $3.8-billion and later purchased Commerce Bank for $8.5-billion in shares and cash.

 

As for assets, unlike RBC’s venerable Canadian retail network, Centura catered more to commercial banking than retail banking, and it was more rural than it was urban.

 

“RBC bought a rural bank, run by, until very recently, rural bankers,” Mr. Routledge said. For TD, however, Commerce Bank could be found in urban and affluent suburban areas. Travel to Cape Cod today and colonial style TD Bank branches are seen situated behind manicured lawns.

 

More importantly, RBC’s U.S. banks had a history of lending to commercial real estate and construction firms. Thirty-six per cent of Alabama National's loan portfolio was in real estate construction, with a further 28 per cent in commercial mortgages. When the market crashed, RBC had to inject $3-billion to $4-billion into RBC Bank USA, which holds all of its U.S. retail assets. “It wouldn’t have survived if it wasn’t for RBC, so it was that weak of a franchise,” Mr. Routledge said.

 

That RBC is pondering a possible sale of its U.S. retail bank, or a vend-in deal, has surprised few people. RBC’s U.S. assets, combined with all other international assets, are worth just 8 per cent of the bank’s total balance sheet. Contrarily, TD’s U.S. assets alone comprise 19 per cent of the bank’s total.

 

BMO has adopted TD’s model and decided to go all-in in the U.S. Midwest. BMO already had retail operations in the region through Harris Bank, but that operation suffered three years of losses during the crisis.

 

Not only has BMO devoted the resources to make this deal work, but it also stole another play from TD’s book and bought quality deposits. Although M&I got into trouble with real estate loans in Arizona and Florida, BMO completely stripped them out of the purchase price.

 

But the all-in strategy comes at a price. “If M&I works, then [bMO’s management team] will be hailed as great conquerors.” If it fails, however, it will be more than “an inconvenient sale of a portfolio asset,” Mr. Routledge said.

 

(Courtesy of The Globe and Mail)

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Royal Bank of Canada (RY), the nation’s biggest lender by assets, is in advanced talks to sell its U.S. retail banking unit to PNC Financial Services Group Inc. (PNC), people with knowledge of the matter said.

PNC is likely to prevail over a rival bid from BB&T Corp. (BBT), and a deal may come within days, said the people, who spoke on condition of anonymity because the talks are private. The business may 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 today. “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. The RBC Bank unit, based in Raleigh, North Carolina, has more than 420 branches concentrated in six states across the region. 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 86 cents, or 1.6 percent, to C$54.55 at 11:09 a.m. in Toronto Stock Exchange trading. PNC fell $1.55, or 2.6 percent, to $57.92 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 (TD) and Bank of Montreal (BMO) expand by acquiring troubled U.S. lenders.

 

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.

 

“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.

 

(Courtesy of Bloomberg)

 

PNC is pretty much the US equivalent to Canada's BMO. It seems RBC is the only Canadian bank that has had a hard time in the US.