RBC terms reports about possible sale as 'rumors'

Royal Bank of Canada is said to be considering a sale of its U.S. subsidiary based in Raleigh. RBC says its parent "continues to make significant investment" in local operations.

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RALEIGH, N.C. — The parent of RBC Bank is reportedly considering the sale of its Raleigh-based U.S. subsidiary, but local officials said Thursday that they are focused on returning to profitability.

“Rumors of this nature are not unusual, especially given RBC’s size and scope and the increasing regulatory pressures in the U.S. financial services industry,” RBC spokesperson Dorsey Landis said in a statement to WRAL News.

“As a publicly traded company, we do not comment on speculation or rumors, in the media or otherwise,” Landis said.

News broke from multiple sources Thursday that Royal Bank of Canada was contemplating a sale of RBC.

No deal is in place, but Canada’s largest bank is taking a serious look at its options for dealing with its struggling U.S. lending business, which has been the bank’s largest headache in recent years. Those options include an outright sale.

Royal Bank spokeswoman Katherine Gay declined to comment to WRAL News on a potential sale of RBC Bank and said the bank remains committed to its U.S. growth strategy.

Landis made a similar comment: “RBC remains committed to its U.S. growth strategy, and our No. 1 priority is to ensure we return to sustained profitability.”

Bloomberg news quoted one banking analyst as saying Winston-Salem based BB&T could be a buyer of RBC.

However, Landis said “there was nothing to report,” and noted in the statement that Royal Bank “continues to make significant investment in RBC.”

“Thanks to this investment, we are undergoing a large transformation to build capabilities and improve efficiencies,” she added. “This transformation will allow us to become the best relationship bank to truly deliver a client experience that is differentiated on exceptional service and value beyond just banking.”

Bloomberg cited “three people with knowledge of the talks” as its sources for the story.

The Canadian lender has spent two years reorganizing RBC Bank, which started after the lender took a $1 billion write-down on the U.S. business in 2009. RBC Bank suffered losses on loans to homebuilders and other business clients during the U.S. sub-prime mortgage meltdown and financial crisis.

During the restructuring, Royal Bank cut more than 1,000 jobs, replaced management, reduced ties to real estate and pared commercial lending to restore profit at the bank, which has more than 420 branches.

JP Morgan Chase & Co. is advising Royal Bank, Bloomberg added.

In addition to BB&T, potential buyers may include U.S. Bancorp and PNC Financial Services Group Inc. (PNC), according to Pri de Silva, an analyst at CreditSight Inc.

“For the last few years, we’ve been very disappointed with their U.S. results,” said Tony Demarin, chief investment officer of BCV Asset Management in Winnipeg, Manitoba, which manages C$290 million ($302 million), including Royal Bank shares.

"You need to have a very strong footprint and critical mass of branches (in the U.S.). I just don’t think the Royal Bank ever got to that,” Demarin said.

The Canadian lender is retreating from U.S. consumer lending after investing about $4.6 billion in the last decade to buy banks in Southeast, including North Carolina, Florida and Alabama. Toronto-based Royal Bank is pulling out as competitors Toronto-Dominion Bank (TD) and Bank of Montreal (BMO) expand by acquiring troubled U.S. lenders in Florida and Wisconsin.

Royal Bank is the best-performing Canadian bank stock this year. The stock has risen 15 percent in 2011.

The international-banking unit, which includes RBC Bank, had 10 consecutive quarterly losses before returning to profitability in the first quarter of 2011, according to the bank’s financial statements. The U.S. consumer bank lost money in the first quarter, Chief Executive Gordon Nixon said on March 3.

RBC Bank is the smallest of Royal Bank’s U.S. operations, which also include asset management and the RBC Capital Markets investment bank.

“If it’s not going to be a focus, they’re better off to be sellers,” said Keith McLean, who oversees C$150 million as a money manager at GMP Investment Management in Toronto.

RBC Bank had $4 billion of equity capital and $27.6 billion of assets as of Dec. 31, according to data on the Federal Deposit Insurance Corp.’s website.

Potential bidders

The largest U.S. banks are unlikely interested in bidding on RBC Bank, CreditSight’s de Silva said in an interview. Bank of America Corp., Wells Fargo & Co., JPMorgan and Citigroup Inc. face constraints related to the deposit market share or ‘‘too big to fail” concerns, de Silva said.

Other potential suitors, such as Fifth Third Bancorp and SunTrust Banks Inc., probably aren’t looking to expand through acquisitions, given their recent repurchase of preferred stock held by the U.S. Treasury Department under the Troubled Asset Relief Program, de Silva said.

Nixon said in a March 2010 interview that “everything is on the table” in weighing options for its U.S. consumer bank, including a sale, merger or takeovers to revive the business. Nixon said during a Jan. 11 banking conference in Toronto that he’s unsure whether Royal Bank would be a buyer or seller of U.S. banking assets.

“In the short-term, our priority is to get the U.S. bank performing at a more normalized level,” Nixon said.

Royal Bank expanded in the U.S. with its 2001 takeover of Centura Banks, which was renamed RBC Bank. Royal Bank’s last U.S. retail bank acquisition was the $1.6 billion takeover of Alabama National BanCorporation in February 2008.

A sale of Royal Bank’s U.S. consumer bank would follow divestitures of other U.S. businesses. Royal Bank exited its U.S. life and health insurance business in October when it sold Liberty Life Insurance for $628.1 million. The bank reported a C$116 million loss on that sale.