RBC looks to U.S. asset management after sale

TORONTO (Reuters) - Royal Bank of Canada RY.TO will focus on expanding its U.S. asset management business now that it has sold its money-losing U.S. retail banking operations to PNC Financial Services Group Inc PNC.N for $3.45 billion in cash and stock.

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

RBC has no plans to reinvest in U.S. retail banking right now, choosing instead to focus on its wealth management and capital markets operations in the country, said James Westlake, head of international banking and insurance at RBC.

“We would be interested in many pieces of wealth management, I think notably, asset management is an area that we have earmarked for growth in the United States,” he told Reuters in an interview on Monday.

“It could be an acquisition, but it’s just at the least increasing our capabilities from where we are.”

The company has about 2,100 financial advisers and manages $200 billion in assets at the U.S. arm of RBC Asset Management, its full-service securities firm. The unit incorporates wealth management and capital markets.

Westlake said RBC is looking to build up its asset management presence in mainland Europe and Asia as well. The bank recently bought British fund manager BlueBay Asset Management for $1.5 billion and the Hong Kong business of Fortis Wealth Management for an undisclosed price.

RBC Bank, the U.S. retail arm of Canada’s biggest bank, failed to turn a profit for 11 consecutive quarters. The unit began in 2001 when RBC bought Centura Banks and expanded through the U.S. Southeast with the acquisitions of Eagle Bancshares, Admiralty Bancorp and others. It now has about 420 branches.

“We probably didn’t get a big enough property to have the type of presence we wanted,” Westlake said.

He said the unit was overweight in U.S. homebuilder financing and in Florida assets, both of which were hammered in the financial downturn.

“We felt that we were probably a couple of years away from being able to really start to generate any kind of returns that we felt would be acceptable.”

RBC will take an after-tax charge of C$1.6 billion, including a C$1.3 billion goodwill write-down.

Overall, RBC made a good deal on the asset at a great price, said Mario Mendonca, an analyst at Canaccord Genuity.

“Royal may not have done a great job in the U.S., but they certainly did a good selling the U.S.,” he said. “I didn’t think this was a strong enough asset to buy for over $3 billion.”

But Westlake said there were many factors that made the deal right for PNC.

“A bank like PNC can take the assets we have and probably do a lot more with them in the near term than we would have been able to do because they have a much more robust platform in the United States than we do,” he said.

RBC will still offer banking services to high-net-worth clients though its U.S. broker-dealer, and to Canadians doing business in the United States.

Westlake said the deal with PNC, which is expected to close in March 2012, firms up RBC’s balance sheet ahead of new international rules on capital requirements for banks, even though the RBC is already well-capitalized.

“The fact that it’s going to take eight-and-a-half months to close, we may well have other thoughts that come up by then of good places to deploy capital.”

Shares of RBC were up 0.22 percent at C$54.45 in Toronto, while PNC was down 1.85 percent at $56.72 in New York.

Additional reporting by Joe Rauch in Charlotte, North Carolina; Editing by Frank McGurty