PNC Financial Services Group announced this morning that it has agreed to buy struggling Raleigh-based RBC Bank for $3.45 billion in cash and stock.
The deal allows Pittsburgh-based PNC to expand quickly in the Southeast, and lets Royal Bank of Canada shed its underperforming U.S. subsidiary.
"This gives us a substantial growth opportunity by bringing our products and services to RBC Bank's markets," CEO James E. Rohr said during a conference call.
PNC expects to close the sale in March 2012, which is when it plans to convert RBC branches to the PNC name. PNC also anticipates that it will cut about $230 million in costs "through operational and administrative efficiency improvements."
That undoubtedly will mean job cuts, especially at RBC's downtown Raleigh headquarters. RBC employs about 5,000 people, including 500 in Raleigh.
Rohr said in a phone interview that no decisions have been made on how many jobs will be eliminated, but added that the bank plans to minimize the number through attrition and by re-training employees whose positions are cut to handle other roles.
"A lot of the expenses come out of the technology side, because we don't have to maintain two sets of systems," he said.
Rohr also stressed that PNC will rely on many of RBC's workers.
"We need all the customer-facing people," he said, referring to employees who work in the branches and others, such as commercial loan officers, who work with businesses. "As you know, we don't have operations in that part of the woods."
RBC's operations center in Rocky Mount, where employees are involved in functions such as information technology and mortgage processing, also is part of PNC's future.
"We need Rocky Mount," Rohr said. "We are going to maintain a significant operation there, because we don't have an operations center in the Southeast."
"My guess is that some of the technology activities might change, but then we might move some activities there as well," he added. A majority of RBC's more than 1,000 employees in Rocky Mount work at the operations center; the bank also has eight branches there.
Rohr said that PNC will be adding a number of product and services that RBC doesn't have.
"With regard to some of these products, we're going to have to do some hiring," he said.
Gov. Bev Perdue told reporters today that she has been assured by RBC that "they don't envision a massive layoff. I am really glad about that."
“North Carolina is a tremendously strong banking state,” Perdue said. “There is nothing to be alarmed about,” she said.
RBC has 424 branches in North Carolina, Florida, Alabama, Georgia, Virginia and South Carolina. After completing the aquisition, PNC will have 2,870 branches, putting it fifth among U.S. banks.
Royal Bank CEO Gordon Nixon said in a conference call this morning that Canada's largest bank concluded that it would have to make major investments in technology and additional acquisitions to compete effectively in the U.S. market -- and decided against going that route.
"From the risk-reward perspective, we felt this was the optimal transaction for our shareholders," he said. "The additional capital can be used to fuel additional growth across all of our business segments."
Nixon said that numerous companies expressed interest in RBC Bank, but declined to provide details.
"It was, in the end, a very competitive transaction," he said.
Nixon called PNC a "first-class organization" that has the scale and the products to fully capitalize on the RBC Bank franchise.
Royal Bank expects to record a loss of $1.63 billion from the sale in the second quarter, including an estimated $1.32 billion write-off of goodwill.
PNC also is paying $165 million for related credit card assets, pushing the total value of the deal to $3.62 billion.
Since 2005, PNC has made six acquisitions.
"With each transaction, we've increased customer satisfaction and revenue, and we believe the acquisition of RBC Bank will continue that trend," Rohr said.
Rohr also boasted that PNC has a track record of donating more money to local charities than the banks it acquires.
The bank's "Grow Up Great" progam is a 10-year, $100 million initiative devoted to early childhood development.
"We pay employees up to 40 hours a year to contribute their time to read to pre-schoolers to enhance educational capabilities," Rohr said.