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RBC to sell U.S. retail banking business to PNC Financial in $3.45bn deal
PNC Financial Services Group (NYSE:PNC) announced Monday it will acquire Royal Bank's (TSE:RY) (NYSE:RY) US retail banking unit in a $3.45 billion deal.
The transaction, at an estimated 97% of the unit's tangible book value, will provide PNC with $25 billion of assets, including the Raleigh, North Carolina-based US subsidiary's 424 branches across Florida, Georgia and North and South Carolina. In addition to the retail unit, the deal will also invole the purchase of related credit card assets for an additional $165 million.
After the acquisition, which excludes RBC's Wealth Management and Capital Markets platforms, PNC will have a total of 2,870 branches, bringing its ranking up to 5th among U.S. banks, adding roughly $19 billion of deposits and $16 billion of loans.
Under the terms of the acquisition, expected to close in March 2012, PNC has the option to pay $1.0 billion of the consideration in PNC common stock, or 3% of its outstanding shares, based on the company's June 17 closing price of $57.79 per share.
The internal rate of return to PNC is estimated to be over 19%, with merger costs anticipated at about $322 million. The U.S. bank, which plans to integrate the RBC subsidiary under the PNC name, said it will fund the cash consideration portion of the deal through cash on hand, debt, and a preferred stock offering.
The announcement comes one decade after RBC began building its U.S. retail segment. The Toronto, Ontario-based bank emerged in the U.S. market when it purchased Centura Bank, after which it proceeded to add to its U.S. holdings, spending nearly $4.0 billion in U.S. acquisitions.
RBC said it expects to incur a $1.6 billion loss, including a $1.3 billion goodwill write off, as a result of the transaction. This loss will be recorded in its current quarter.
However, Canada's largest bank also explained it plans to continue growth in its cross-border banking platforms, as it will maintain U.S. banking operations and continue to provide banking services to RBC Wealth Management and RBC Capital Markets in the U.S., two business that have 17,000 employees worldwide.
Cross-border banking clients will still have access to funds and banking products such as mortgages, loans, ATMs, U.S. dollar accounts, debit and credit cards as well as online banking.
"RBC remains fully committed to the U.S. market and this transaction allows us to focus our U.S. efforts on continuing to grow our two largest U.S. businesses, RBC Wealth Management and RBC Capital Markets," said RBC president and CEO, Gordon M. Nixon.
On the New York Stock Exchange in pre-market trading, PNC's shares were down nearly 1.2%.
