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RBC eyes sale of U.S. consumer banking unit: source

NEW YORK/TORONTO (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 Royal Bank of Canada (RBC) sign is seen in downtown Toronto March 3, 2011. REUTERS/Mark Blinch

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.

Shares of the bank were down 0.35 percent at C$60.07 on the Toronto Stock Exchange, the smallest share drop among Canada’s six major banks on Thursday, 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.

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 faced 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.”

Potential buyers for the 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, although it may be challenged to get a decent price for the assets given performance, pundits say.

Like the mining and energy sectors, financial services are seen as an area ripe for merger and acquisition activity in Canada and the United States.

Deal advisors 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.

There were two major deals announced in December by Royal Bank’s Canadian competitors, although they 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.

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.

Editing by Jeffrey Hodgson and Peter Galloway

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