06/20/2011 07:12 EDT | Updated 08/20/2011 05:12 EDT

Royal Bank of Canada To Sell U.S. Retail Branches To PNC Financial Services Group for $3.45-Billion

THE CANADIAN PRESS -- TORONTO - Royal Bank (TSX:RY) has agreed to shed its U.S. regional retail banking operations at more than a billion dollars in losses, selling the assets to the PNC Financial Services Group Inc. for about US$3.62 billion.

Canada's biggest bank said Monday it will face a C$1.6-billion loss that will be booked in the third quarter, which ends July 31. The loss includes an estimated $1.3 billion writeoff.

Royal Bank said the purchase will be comprised of cash as well as up to $1 billion in PNC shares.

The transaction covers its RBC Bank operations, which will be sold for $3.45 billion, and its credit card assets, sold for US$165 million.

The bank emphasized that the transaction doesn't mean it's fully exiting the United States, as it plans to continue operating both its U.S. wealth management and capital markets operations.

"In addition, we will maintain our existing cross-border banking platform for current and future clients with a targeted suite of cross-border products and services to meet their needs," said president and CEO Gordon Nixon in a release before stock markets opened.

"We have built global capabilities and market-leading businesses in RBC Wealth Management and RBC Capital Markets and are committed to leveraging our strengths to invest in these and other high-return businesses."

Royal Bank operates under the RBC Bank banner in the U.S. with more than 400 branches throughout North Carolina, South Carolina, Virginia, Georgia, Florida and Alabama.

The banks were formerly part of the Centura and other brands that were acquired by Royal starting a decade ago. However, the Canadian bank's rapid expansion in the U.S. southeastern states struck a major hurdle when the U.S. housing bubble burst and hit mortgage markets hard in the southern U.S. states where the former Centura bank operated.

Despite the Royal's troubles in the United States, other Canadian banks — TD Bank and Bank of Montreal — are doing well in the American market.

TD's former Banknorth and Commerce Bank franchises — renamed as TD Bank N.A — are among the biggest regional banks in the United States, operating throughout New England and the U.S. northeastern states. Meanwhile, Bank of Montreal has a growing banking and wealth management franchise from its Harris Bank operations based in the Chicago-area.

The sale of the banking assets face usual closing conditions, including regulatory approvals, and the transaction is expected to close in March 2012.

A Wall Street Journal report on Sunday said that Pittsburgh-based PNC beat out rival regional bank BB&T Corp. for the Royal Bank operations.

PNC chairman and CEO James Rohr said in a statement that the RBC acquisition will give PNC access to "attractive southeast markets in a way that will create value for our shareholders."

The deal adds about $19 billion of deposits and $16 billion of loans based on RBC Bank (USA) balances as of April 30.