April 7, 2011 / 5:18 PM / in 7 years

UPDATE 4-RBC eyes sale of U.S. consumer banking unit-source

* Canada’s largest bank declines comment

* RBC has been expanding wealth management operations

* Retail bank network is in southeastern United States (Updates share price and adds context. In U.S. dollars unless noted)

By Paritosh Bansal and Pav Jordan

NEW YORK/TORONTO, April 7 (Reuters) - Royal Bank of Canada (RY.TO) is looking to sell its struggling U.S. consumer banking business after failing for years to wring profits from the operations acquired nearly a decade ago.

A source familiar with the situation said on Thursday that Canada’s largest bank has retained JPMorgan Chase & Co (JPM.N) to advise it on the sale process, but did not provide further details. The source declined to be named because the sale process is private.

RBC has expanded its wealth management and wholesale banking presence internationally, with emphasis on high growth markets like Asia, but the retail bank network in the southeastern United States has weighed on earnings for years. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a factbox on RBC’s U.S. unit [ID:nN07174690] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Shares of the bank closed 0.02 percent higher at C$60.29 on the Toronto Stock Exchange on Thursday, even as shares among Canada’s other five major banks retreated, suggesting the news might be helping to support the stock.

Royal Bank spokeswoman Katherine Gay told Reuters by email that the bank was not commenting on the issue. JPMorgan also declined to comment.

Royal Bank Chief Executive Gord Nixon said in January the bank was unsure whether it would eventually add to its U.S. retail banking business, or retreat from it.

ADD OR RETREAT?

RBC’s U.S. retail bank has lost money for 10 straight quarters and has generally been a drag on earnings since RBC purchased North Carolina-based Centura Bank in 2001 for $2.2 billion ($3.5 billion Canadian at the time).

The unit was hit hard by the U.S. real estate collapse and waves of foreclosures.

“We would anticipate that should the deal go through, (RBC‘s) international segment would be immediately much more profitable, supporting the bank’s overall profitability metrics,” Barclays Capital analyst John Aiken said in a research note.

“This stems from the pressure that its U.S. retail banking has faced, being located in the U.S. Southeast, one of the harder hit areas in the real estate declines experienced by the U.S. over the past few years.”

Deal advisers say there is new energy in the U.S. banking market after three years of gloom, with healthy banks once again stepping up to snap up rivals and chase revenue growth in the lukewarm economy.

Some analysts said Royal Bank might be better served by expanding its operations. Other Canadian banks have seen fit to bulk up on U.S. retail banking in the wake of the recession.

There were two major U.S. deals announced in December by Royal Bank’s Canadian competitors and both were acquisitions rather than divestitures.

Bank of Montreal [BMO.TO] agreed to buy U.S. lender Marshall & Ilsley Corp MI.N for $4.1 billion, offering a 34 percent premium, and Toronto-Dominion Bank (TD.TO) agreed to buy Chrysler Financial for $6.3 billion, making it one of North America’s biggest bank-owned auto lenders.

TD Bank first entered the U.S. market in 2005 and now has a network of about 1,300 branches. It also owns about 46 percent of online broker TD Ameritrade (AMTD.O).

Potential buyers for the RBC unit, rebranded RBC Bank in 2008, would likely need to be banks with growth ambitions in the same geographical area spanning six states in the U.S. Southeast. RBC, however, may be challenged to get the price it wants given the performance of the assets.

Earlier this month RBC reported a record profit in the first quarter, earning C$1.84 billion ($1.92 billion), or C$1.24 a share, up from C$1.5 billion, or C$1.00 a share, a year earlier.

$1=$0.96 Canadian Editing by Jeffrey Hodgson and Peter Galloway

Our Standards:The Thomson Reuters Trust Principles.
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