01/22/2015 07:11 EST | Updated 03/24/2015 05:59 EDT

Royal Bank Of Canada To Buy City National, California Bank That Caters To The Rich

5th and Flower, Downtown Los Angeles

TORONTO - The Royal Bank (TSX:RY) has struck a friendly deal to acquire Los Angeles-based City National Corp. for US$5.4 billion in a bid to grow its wealth management business in the United States.

"City National's clients are largely high net worth individuals and commercial enterprises — two of the fastest growing client segments in the U.S.," RBC chief executive Dave McKay told investors during a conference call Thursday.

He noted City National is strategically positioned in the largest and most attractive U.S. markets including New York, Los Angeles and the San Francisco Bay area.

"In fact, the combined high net worth population of these three markets is over four-and-a-half times the entire high net worth population of Canada," McKay said.

The head of City National (NYSE:CYN) will remain with the company and also be responsible for RBC's wealth management business in the United States.

RBC has about 340,000 U.S. households as clients of its wealth management arm. The deal, which will be paid for using a combination of cash and shares, will enable the bank to offer a broader range of financial products to those clients, McKay said.

Under the proposed deal, City National shareholders would get the equivalent of US$93.80 per share — roughly half in cash and half in Royal Bank shares.

City National shares closed Wednesday at US$74.57 on the New York Stock Exchange but jumped about 14 per cent after the announcement. They were trading at US$88.02 several hours after the deal was announced.

The deal requires various approvals from regulators and City National shareholders.

"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."

Barclays analyst John Aiken said the price being paid by RBC is not "onerous."

"(City National) provides geographic exposure to the West Coast, with a strong presence in California as well as operations in New York, and industry expertise in sectors such as technology and health care," Aiken said in a note to clients.

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