Canada's Royal Bank Divestiture?

By: Ian Campbell | Tue, Jun 7, 2011
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The Royal Bank of Canada (RBC) purchased Centura Banks, headquartered in Rocky Mount, North Carolina, in mid-2001 for U.S.$2.3 billion (then Cdn$3.5 billion). Centura Banks, now named RBC Bank, subsequently acquired U.S. regional banks in Georgia, Florida, and Alabama. RBC Bank currently:

Two early April articles (now 60 days old), one published by Thomson Reuters titled 'FACTBOX-RBC eyes sale of U.S. Retail Unit - reading time 3 minutes, and one published by Globe Investor titled 'RBC plans retreat from U.S.' - reading time 5 minutes, then reported that RBC was (and I presume still is) planning to sell or merge its equity interest in RBC Bank. In combination, these articles report that:

If the quoted $ amounts in the articles are expressed in $U.S., and RBC indeed does sell RBC Bank for a price approximating the aforementioned 'value estimate', RBC likely will suffer a loss of far more than Cdn$2.0 billion on the transaction given that the $U.S. and $Cdn currently are close to par in circumstances where the U.S.$ traded at an often significant premium to the $Cdn between 2001 and 2010 when the aforementioned U.S. acquisitions were made.

So far, from my perspective, all of the foregoing is but interesting background to what I assess as the 'real issue' here. As best I know, RBC is strategized and managed by an excellent Board of Directors and Senior Management Group.

That leads me to the following thoughts:

After two months, no sale transaction, merger, or other transaction has been announced. I think this is something to monitor and think about going forward - frankly more because of the question I pose and its ultimate answer, rather than for anything to do with the specifics of any transaction RBC may enter into in respect of RBC Bank.



Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
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