Canada's Royal Bank Divestiture?
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:
- operates over 420 full service banking centers in Alabama, Florida, Georgia, North Carolina, South Carolina, and Virginia;
- employs more than 5,000 people;
- is the 40th largest U.S. bank.
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:
- to April, 2011 RBC has invested $4.6 billion in trying to build a U.S. banking business;
- in mid-2009 RBC took a $1.0 billion (accounting) write-down of that investment; and,
- the RBC Bank assets had an estimated value in early April of this year of between $2.0 and $2.5 billion.
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:
- it seems logical to me that in 2001 RBC strategically bought and subsequently grew RBC Bank in order to establish a retail banking beachhead in the U.S. through which it could build a meaningful U.S. commercial bank - with an objective of becoming far larger and more important than #40 on a U.S. commercial bank 'size list';
- the U.S. economy - irrespective of its current National Debt, unemployment rate, and so on - continues to be by far the largest 'engine' driving the world economy;
- notwithstanding the current global importance of the U.S. economy, from a business perspective it seems - dependent on transaction price and terms - that RBC is prepared to divest its U.S. commercial banking strategy;
- I think an important question to ask oneself is: What does this possible RBC corporate activity say about one major Canadian Bank Board's and Senior Management's view of U.S. Main Street and the U.S. economy going forward?
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.