Royal Bank of Canada, that nation's biggest lender by assets, is in advanced talks to sell its U.S. retail banking unit to Pittsburgh-based PNC Financial Services Group Inc., people with knowledge of the matter said.
PNC is likely to prevail over a rival bid from Winston-Salem, N.C.-based BB&T Corp. and a deal may come within days, said the people, who spoke on condition of anonymity because the talks were private. The business may fetch as much as $3.7 billion, according to Peter Routledge, an analyst at National Bank Financial in Toronto.
"In U.S. personal and commercial banking, you either go big or go home," Mr. Routledge said in an interview Friday with Bloomberg News. "Royal has said they're not going to make that big double-down bet; they're going to go elsewhere, and I think that's the right strategy."
Amy Vargo, a PNC spokeswoman, said the bank "has a policy of not commenting on rumor and speculation." Katherine Gay, an RBC spokeswoman, declined to comment.
A deal would help PNC expand its retail business in the U.S. Southeast beyond a foothold in Florida. The RBC Bank unit, based in Raleigh, N.C., has more than 420 branches concentrated in six states across the region.
PNC already has retail operations in 15 states and Washington, D.C., including more than 2,500 branches, according to the bank's website. The firm acquired Cleveland-based National City Corp. in late 2008 for about $3.9 billion in stock.
During an investor conference in New York City in September, PNC chairman and CEO James Rohr said the bank planned to expand its branch banking business in certain markets, including Chicago; Washington, D.C.; central New Jersey; and south Florida.
He also said PNC would consider strategic acquisitions in those markets. "If there's a bank for sale that fits the market and we can take the costs out ... we would consider that," he said.
"If you look at potentially what RBC's unit could do for them, it expands PNC's presence in an area that might be an attractive growth area," said Craig Fehr, an analyst with Edward Jones & Co. in St. Louis, whose firm rates both banks a "buy."
The nation's seventh biggest bank, PNC reported a record net income of $3 billion, or $5.74 a share, in 2010, or $1 billion more than 2009. With its takeover of National City, PNC controlled nearly half of all local deposits in the Pittsburgh region last year.
PNC announced plans last month to build a $400 million, 40-story office tower on Wood Street, Downtown, in part because of its need for more space following its acquisition of National City.
The new headquarters building, being billed as the world's greenest skyscraper, will house about 3,000 employees, including top executives, and will free up space in some of the bank's other four buildings Downtown.
"PNC has really done a good job of righting the ship post-credit crisis. They've done a good job of growing, and we've seen them in a short amount of time successfully integrate the NatCity deal," Mr. Fehr said. "They've shown the propensity for being able to digest some of these acquisitions."
Before the National City deal, PNC acquisitions included the 2005 purchase of Riggs National Corp. that gave it a presence in the Washington, D.C., area, including parts of Virginia and Maryland, and deals in 2007 that added branches in New Jersey, Maryland, Delaware and Eastern Pennsylvania.
Toronto-based Royal Bank is seeking to sell RBC Bank a decade after it entered the United States with a $2.16 billion takeover of Centura Banks in June 2001. RBC Bank has posted 11 straight quarterly losses as of March 31, with combined annual losses of about $3.1 billion since 2007, Federal Deposit Insurance Corp. filings show.
Royal Bank spent at least $4.6 billion buying a network of U.S. consumer banks over the past decade.
Royal Bank has spent two years reorganizing RBC Bank, which started after the lender said in May 2009 that it took a $1 billion write-down on the U.S. business. RBC Bank suffered losses due to impaired loans from homebuilders and other business clients during the U.S. subprime meltdown and financial crisis. During restructuring, Royal Bank cut more than 1,000 jobs, replaced management, reduced ties to real estate and pared commercial lending.
Royal Bank shares rose 80 cents Friday to finish at $55.54 while PNC fell $1.68 to close at $57.79.
Pittsburgh Post-Gazette staff writer Mark Belko and Bloomberg News contributed.