Business

Pittsburgh-based PNC bank to buy RBC for $3.45B

Posted June 17, 2011 1:12 p.m. EDT
Updated June 20, 2011 6:20 p.m. EDT

— Pittsburgh-based PNC Financial Services Group is buying Raleigh-based RBC Bank in a deal worth $3.45 billion.

The deal was announced early Monday after media reports over the weekend said PNC Financial had topped Winston-Salem based BB&T in the bidding for RBC.

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 a conference call with analysts, PNC executives said they could save as much as $340 million. They didn't discuss specifics about any job cuts but cited the ending of "interoffice expense" associated with running operations in the U.S. and Canada as a source for savings.

Gov. Beverly Perdue said people shouldn't worry too much about layoffs, citing the takeover of Charlotte-based Wachovia by Wells Fargo two years ago.

"We've seen their number of employees have actually grown. They've even surpassed where they were when Wachovia was acquired," Perdue said.

Thad Woodard, president of the North Carolina Bankers Association, echoed that sentiment.

"They're coming in fresh, and they're going to need to keep the people with the knowledge, the people with the contacts, the people with that root system that's going to be so very important to them," Woodard said.

Jim Westlake, the chief executive of RBC Bank in Raleigh, said he was pleased by the sale.

"Not only will they keep everything that we have, but we certainly expect that they will grow and expand that network ," Westlake said.

Still, some RBC customers were uncertain about the change.

"I may not stay with them. I don't know. We'll see," customer Martha McLaurin said.

Raleigh business owners also were disappointed by the merger news.

"We were excited, and we went through all the construction, and we thought they would be there forever and ever and ever," said Floye Dombalis, whose Mecca Restaurant downtown is near the RBC Plaza tower, which served as the bank's headquarters for less than three years.

Royal Bank of Canada called the deal a “refocusing” of its “U.S. growth strategy” and noted that the sale doesn't include its RBC Wealth Management and RBC Capital Markets business.

“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,” Gordon Nixon, chief executive of Royal Bank, said in a statement.

“We have built global capabilities and market-leading businesses in RBC Wealth Management and RBC Capital Markets and are committed to leveraging our strengths to invest in these and other high-return businesses,” Nixon said. “We continue to actively deploy our capital where we believe we can generate the highest returns.”

PNC view

PNC Chairman and Chief Executive James Rohr said in a statement that RBC "provides PNC a great opportunity to enter attractive Southeast markets in a way that will create value for our shareholders."

The bank has also agreed to buy certain credit card assets of RBC Bank, (Georgia) National Association. RBC says that it would receive$165 million for those assets.

"Everybody is trying to open up this market and to provide jobs and to get the credit mechanism flowing again. This is about the most positive thing I've seen in quite some time," Woodard said.

It is the second big banking transaction in recent days, following the announcement that Capital One Financial Corp. struck a $9 billion deal to buy the online bank of the Dutch financial services company ING.

RBC has about $19 billion in assets and $16 billion in loans, according to The Wall Street Journal.

The selling price for RBC is considerably higher than in May, when the newspaper 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.

The deal also includes the naming rights to the RBC Center arena in west Raleigh and the lease on the 33-story RBC Plaza in downtown Raleigh.

Raleigh and Wake County gave RBC a $750,000 tax incentive to build the RBC Plaza. The money was supposed to come in installments, and it wasn't clear Monday how much of that money the bank has received so far.

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.

Rohr told investors June 3 that PNC 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.”

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 sought 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,” Peter Routledge, an analyst at National Bank Financial, 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. Its 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 and The Associated Press contributed to this report.