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Canada's RBC targets U.S. wealthy with $5.4 billion City Nat'l deal

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

By Jeffrey Hodgson

TORONTO (Reuters) - Royal Bank of Canada (RY.TO) is pushing deeper into the U.S. wealth management business, saying on Thursday it will buy Los Angeles-based City National Corp (CYN.N) for $5.4 billion (3.55 billion pounds) in a deal that targets City's stable of high-net worth clients.

Canada's major banks, which emerged from the financial crisis largely unscathed, have been on a global hunt to expand their wealth management arms. Canadian bankers say the industry should benefit from an aging population and is less capital-intensive than traditional lending.

City National serves clients in several large metropolitan areas, including New York, Los Angeles, the San Francisco Bay Area and Orange County, California.

Executives at RBC, Canada's largest bank by market value, said they were also drawn to City National by its commercial banking arm, which they want to team up with their RBC Capital Markets unit to win more business.

RBC Chief Executive Dave McKay said the deal goes back to a 2013 meeting with City National Chairman Russell Goldsmith, who will run the combined U.S. wealth management business.

"I approached Russell, and he had never met me before. We sat down and just talked about how the two companies together could do something really special in the U.S. market," McKay told analysts on a conference call.

"He says: 'But I'm not for sale'. I go 'but one day, if you do consider selling, would you pick up the phone and call?' That's how it started."

RBC offered $47.25 in cash and 0.7489 in stock for each City National share.

The total offer of $93.80 per share, based on RBC's closing price of $62.16 on the New York Stock Exchange on Wednesday, represented a premium of nearly 26 percent to City National's last closing price.

City's shares jumped nearly 18 percent to $87.76 early on Thursday. RBC's shares slipped about 3 percent, hitting $59.60 in New York and C$72.62 in Toronto.

RBC has pushed hard to expand its global wealth management footprint, buying Britain's BlueBay Asset Management in 2010. It has also invested heavily in its capital markets business, especially in the United States.

The Canadian bank now has 8,000 employees in the United States, including more than 3,000 in New York.

"CYN is a solid franchise that will deepen RY’s penetration in U.S. wealth management and broaden its geographic exposure, particularly in California," Barclays analyst John Aiken said in a note to clients.

There have been few large banking deals in the United States since the financial crisis as regulators have stepped up scrutiny of the capital levels of acquiring banks.

However, there has been a wave of consolidation among smaller U.S. banks, which have struggled to increase profits due to historically low interest rates.

RBC said the transaction is expected to add to its earnings in the second year after the deal closes, likely in the fourth quarter of this year.

(With additional reporting by Ashutosh Pandey and Tanya Agrawal in Bengaluru; Editing by Saumyadeb Chakrabarty, Alden Bentley and Peter Galloway)