NEW YORK (Reuters) - PNC Financial Services Group Inc agreed on Sunday to buy Royal Bank of Canada’s U.S. retail bank operations for $3.45 billion, helping it expand in markets in the U.S. Southeast, two people familiar with the matter said on Sunday.
The deal helps RBC offload a business it has struggled to make profitable and sees the largest Canadian bank by assets retreat from the U.S. retail banking market even as some of its national rivals are expanding in this country.
For Pittsburgh-based PNC, the deal helps add some 420 branches in markets such as Florida, Alabama and Georgia. The purchase price represents a $112 million discount to the book value of the unit, one of the sources said.
PNC is also buying a $165 million credit card portfolio from RBC, the source added.
PNC beat out Winston-Salem, North Carolina-based rival BB&T Corp in the race for the unit.
The deal, which was agreed earlier in the day and approved by the boards, is expected to be announced on Monday, the source said.
PNC has the option to give RBC up to $1 billion in stock and the rest in cash for the deal, but the exact composition will not be known until later, the source said, adding that the deal is expected to close in the first quarter of next year.
JPMorgan Chase & Co is advising RBC on the sale, while Bank of America Merrill Lynch is advising PNC.
JPM and Bank of America declined to comment. RBC and PNC were not immediately available for comment. The sources declined to be identified because the deal is not public yet.
RBC’s U.S. retail bank 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.
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.
There were two major deals announced in December by Royal Bank’s Canadian competitors, although they were acquisitions rather than divestitures.
Bank of Montreal agreed to buy U.S. lender Marshall & Ilsley Corp for $4.1 billion, offering a 34 percent premium, and Toronto-Dominion Bank agreed to buy Chrysler Financial for $6.3 billion, making it one of North America’s biggest bank-owned auto lenders.
The PNC deal comes just days after ING Groep agreed to sell its US online bank ING Direct USA to Capital One Financial Corp for $9 billion.
Reporting by Paritosh Bansal and Soyoung Kim; Editing by Bernard Orr and Diane Craft