September 30, 2022

DealBook: PNC to Buy R.B.C. Unit for $3.5 Billion

Jim R. Bounds/Bloomberg

The PNC Financial Services Group announced on Monday that it had signed an agreement to buy the American retail business of the Royal Bank of Canada for $3.45 billion.

The deal, which is priced at a $112 million discount to tangible book value, will allow PNC to expand into the Southeast. The Royal Bank of Canada unit has 424 branches in North Carolina, Florida, Alabama, Georgia, Virginia and South Carolina, and roughly $25 billion of assets.

Once the acquisition is complete, PNC will be the fifth-largest bank in the United States, as measured by branches. PNC predicted that the deal would increase earnings by 2013.

Royal Bank of Canada is selling a business that has struggled as a result of the housing crisis. The Canadian bank acquired the unit, then named Centura Banks, for $2.2 billion in 2001. But the group has struggled to gain market share, even after acquisitions.

Royal Bank of Canada is among several Canadian banks that looked to the United States for growth with varying degrees of success. The BMO Financial Group, the parent of Bank of Montreal, agreed in December to buy Marshall Ilsley, a bank based in Milwaukee, for $4.1 billion. The TD Bank Financial Group, based in Toronto, bought Commerce Bancorp of New Jersey for $8.6 billion in 2008, and last year bought three failed banks in Florida.

Bank of America Merrill Lynch and the law firm Wachtell, Lipton, Rosen Katz advised PNC. RBC Capital Markets, JPMorgan Chase and Sullivan Cromwell worked with Royal Bank of Canada.

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DealBook: PNC Is Said to Be Near $3.45 Billion Deal for R.B.C. Unit

6:01 p.m. | Updated The PNC Financial Services Group is near a deal to buy the Royal Bank of Canada’s American consumer banking operations for about $3.45 billion in cash and stock, people briefed on the matter said on Sunday.

The transaction, which would allow R.B.C. to shed a division that has been hobbled by the housing crisis, could be announced as soon as Monday, these people said. They cautioned that final details were still being ironed out and that the deal could still fall apart.

PNC beat out a rival, the BBT Corporation, in a race for the unit, RBC Bank, the people briefed on the matter said.

R.B.C. purchased Centura Banks in 2001 for nearly $2.2 billion, beginning a push into American retail banking. But the unit, renamed RBC Bank after a series of acquisitions, has failed to win significant market share.

RBC Bank was buffeted by the housing crisis, losing money for several consecutive years. It took a $1 billion write-down in 2009, leading to a reorganization that included eliminating jobs and reducing lending.

By contrast, PNC has performed well since the financial crisis. It has reported three consecutive increases in annual profit, earning $3.4 billion in 2010. Its last major deal was buying the National City Corporation in 2009 for about $4 billion.

Through the deal, PNC is hoping to expand into the Southeast, an area in which the bank currently has relatively little presence. RBC Bank currently has more than 420 locations in six Southern states, from Virginia to Florida.

While R.B.C. is pulling back from retail banking in the United States, it still has significant operations in the country, including an investment banking arm.

Other Canadian competitors, however, have made big pushes into American consumer lending over the last year. The BMO Group agreed in December to buy Marshall Ilsley, based in Milwaukee, for $4.1 billion.

That same month, Toronto-Dominion struck a $6.3 billion deal for Chrysler Financial, the former lending arm of the eponymous car maker.

R.B.C. is only the latest bank to sell a major unit under pressure. Last week, the ING Group agreed to sell its American online banking arm to Capital One Financial for $9 billion as part of the requirements of its bailout by the Dutch government.

Shares in R.B.C. rose 1.2 percent, closing at 54.33 Canadian dollars on Friday, after Bloomberg News reported that PNC had won the auction.
Shares of PNC fell 2.8 percent, to $57.79, on Friday.

R.B.C. was advised by JPMorgan Chase, while PNC was advised by Bank of America Merrill Lynch.

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