It may come at no surprise to some people, but Royal Bank of Canada (RBC) has put its U.S. operations up for sale, which is otherwise known as RBC Bank. I came across an article from the Wall Street Journal, which revealed the information of the sale.
The Royal Bank of Canada (RBC) is Canada’s largest bank (by assets) and has attracted several prospective bidders, despite the numerous problems its US retail operations have faced.
RBC Bank is expected to sell roughly for $3 billion.
With the sale of RBC Bank, it would show that RBC’s decade long attempt into the U.S. market was for virtually nothing. Some more bullishly would state they failed in the US. RBC’s retreat from the US could create some issues for it in the future. RBC’s competitors will clearly take advantage of the U.S. market, with low valuations in the wake of the financial crisis many banks have been getting picked off. Think about TD Bank Group recent Aqcuisition of Chrysler Finanical, BMO buying Marshall & Ilsley Corp, and that is just to name a few.
We have seen several Canadian lenders post solid earnings since the financial crisis, none of which have required any form of bailout. Comparing this to the U.S. banking operators who begged for bailout money.
About a month ago we received news that RBC was potentially selling of their U.S. retail banking operations, we contacted RBC for further information, however the only information we received then was:
RBC remains committed to its U.S. growth strategy
Clearly, with the news of the sale, their commitment is not there.
The response that we got from Royal Bank of Canada today was a simple:
Would selling off RBC Bank be a good move?
Realistically, at this point, their international banking section has reported losses, with $317 million loss in 2010 alone.
Selling the US retail operation would help them stop losing money and their earnings would improve, however leaving the U.S. market may not be the right move.
We are seeing many of the Canadian banks (mainly the big six) making their impact on the U.S market, further expanding their presence. If RBC was to leave at this point, it would hinder their progress in North America as a whole, and if they were to make an attempt in the future, they would either have to buy out several banks to gain a presence or just start from scratch. Either way, if they were to come back into the US market, it would be extremely difficult for them.
Personally, despite the losses, in the long run I feel it may be better to work through the current problems before selling, that way they can at least earn more on the sale or at potentially keep their U.S. operations. Allowing them to further expand their presence in the U.S.
What are your thoughts on Royal Bank of Canada selling the US operations? Do you think it is a good move or a bad move for RBC?