BB&T Corp. (BBT) and PNC Financial Services Group Inc. (PNC) are among lenders that have shown interest in buying Royal Bank of Canada (RY)’s U.S. consumer bank, said two people with knowledge of the matter.
Royal Bank, which put the money-losing RBC Bank unit up for sale this year, is seeking to sell the business for stock rather than cash, said the people, who spoke on condition of anonymity because the talks are private.
“Doing a stock deal would prevent RBC from fully cutting ties to this market, but at the same time RBC may be recognizing they’re not in the best position to be the operator,” Craig Fehr, an analyst with Edward Jones & Co., said.
Royal Bank has spent about $4.6 billion buying a network of U.S. consumer banks over the past decade, beginning with its 2001 takeover of Centura Banks, since renamed RBC Bank. RBC Bank has posted annual losses totaling almost $3.1 billion since 2007, according to Federal Deposit Insurance Corp. filings.
Royal Bank, based in Toronto, rose 5 cents to C$59.63 at the 4 p.m. close of trading on the Toronto Stock Exchange.
RBC Bank, based in Raleigh, North Carolina, may fetch as much as $3.7 billion, according to Peter Routledge, an analyst at National Bank Financial. JPMorgan Chase & Co. is advising Royal Bank on the potential sale, other people with knowledge of the situation said earlier this month.
BB&T, the Winston-Salem, North Carolina-based lender, would use an acquisition to grow in the U.S. Southeast, where it already has branches in each of the six states in which RBC Bank operates. BB&T Chief Executive Officer Kelly King said earlier this year that he’d be “aggressive” in pursuing takeovers.
David White, a spokesman for BB&T, and Fred Solomon, a spokesman for PNC, declined to comment. Katherine Gay of Royal Bank said the lender hasn’t made a decision to sell the unit.
BB&T, the ninth-largest U.S. bank by deposits, has 1,800 offices, according to its website. The lender, which didn’t post a quarterly loss during the financial crisis, had profit of $816 million in 2010.
PNC, the sixth-largest U.S. bank by deposits, would fill a gap in its network in the Southeast, adding branches in the Carolinas, Georgia and Alabama. The Pittsburgh-based lender reported last week that first-quarter net income rose 24 percent to $837 million from a year earlier. Its purchase of National City Corp. in 2008 helped propel PNC to record profit of $3.4 billion last year.
On the Horizon
“M&A is always on the horizon,” PNC Chief Executive James Rohr said on a conference call with investors last week. “There are a number of things for sale, but I think we just have to be disciplined.”
Royal Bank’s domestic rivals Toronto-Dominion Bank and Bank of Montreal have expanded by acquiring assets. Toronto-Dominion, Canada’s second-largest bank, purchased Chrysler Financial for about $6.3 billion. Bank of Montreal agreed to buy Wisconsin lender Marshall & Ilsley Corp. for about $4.1 billion.
Royal Bank CEO Gordon Nixon told investors in January he’s unsure whether the company 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 at a banking conference in Toronto.
Royal Bank’s international-banking unit, which includes RBC Bank, had 10 consecutive quarterly losses before returning to profit in the first fiscal quarter of 2011, according to the bank’s financial statements. RBC Bank “was still slightly unprofitable” in that period, Nixon said on March 3.
“Taking an equity stake in a larger US bank is probably the best way for RBC to avoid taking a large writedown on the sale of their U.S. consumer bank,” said Todd Johnson, a portfolio manager with BCV Asset Management in Winnipeg, Manitoba. “Prices on U.S. banks are not near their values when RBC acquired their U.S. assets.”
To contact the reporters on this story: Zachary R. Mider in New York at email@example.com; Sean B. Pasternak in Toronto at firstname.lastname@example.org, Doug Alexander in Toronto at email@example.com.
To contact the editors responsible for this story: David Scanlan at firstname.lastname@example.org; David Scheer at +1-212-617-2358 or email@example.com; Jennifer Sondag at +1-212-617-2716 or firstname.lastname@example.org.