Big banks all across the globe are looking to grow their wealth management businesses as regulations squeeze profits in retail banking and other areas. The Royal Bank of Canada is no exception, and on Thursday RBC announced it has finalized a friendly deal to acquire City National Corp. for $5.4 billion US in cash and stock to expand its U.S. wealth management.
If the deal is approved, City National shareholders will receive $93.80 U.S. per share, close to half in cash and the other half in RBC shares.
Of note, the CEO of City National is planning to stay on and will be responsible for RBC’s wealth management division in the United States.
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The merger still requires several approvals from U.S. and Canadian regulators as well as City National shareholders.
Global economic doldrums and tighter regulations have made retail banking and investment banking less profitable for U.S. and European megabanks, so the management at these financial institutions has been focusing on their wealth management businesses where the profit margins are still high.
RBC chief executive Dave McKay says Canada’s largest commercial bank currently has about 340,000 U.S. households as clients of its wealth management arm and City National will enable the bank to offer a broader range of financial products.
“We’re very enthused about merging with RBC,” said Russell Goldsmith, who is City National’s chairman and CEO.
“It will deliver significant value to our shareholders along with the opportunity to participate in the future growth of RBC.”
City National shares closed Wednesday at $74.57 on the New York Stock Exchange, but were up more than $14 at $88.80 in pre-market trading Thursday after the news. Royal Bank of Canada shares are trading down 60 cents at $62.16.