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PNC Accomplished RBC Bank USA Deal

Zacks Equity Research

Last Friday, PNC Financial Services Group Inc. (PNC) has completed the purchase of RBC Bank (USA), the U.S. retail banking subsidiary of Royal Bank of Canada (RY), according to a filing with the Securities and Exchange Commission on Monday. PNC Financial bought 100% of the issued and outstanding shares of RBC Bank for around $3.47 billion in cash.

Following the closure of the deal, RBC Bank was merged with and into PNC Bank, an indirect, wholly owned subsidiary of PNC Financial. As a result of this, RBC branches opened as PNC branches yesterday. In addition, PNC Bank accomplished the purchase of RBC Bank-related credit card receivables from RBC Bank (Georgia).

Notably, in June 2011, PNC Financial announced its plan to purchase RBC Bank (USA). The acquisition facilitated PNC Financial to expand its footprint in the Southeast markets by adding over 400 branches to its network.

PNC Financial expects the acquisition to be immediately accretive to earnings (excluding integration costs). With the addition of RBC Bank's loan portfolio, the company expects loan growth in the mid to high teens in 2012.

Our Take

PNC's continued strengthening of balance sheet, with focus on risk and expense management, should propel its earnings ahead. Benefits from the acquisition of National City in 2008 continue to exceed the company's expectations.

In 2011, PNC Financial also completed acquiring the 27-branch retail bank franchise in Georgia from Flagstar Bank, a subsidiary of Flagstar Bancorp Inc. (FBC). The deal helped PNC Financial to expand operations in Atlanta. The company's latest acquisition of RBC Bank also augurs well and adds to its competitive edge.

Yet, the top-line headwind is expected to remain in the near term, with the sluggish economic recovery and a low interest rate environment. Alongside, the regulatory issues also remain a concern.

PNC shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Considering its fundamentals, we also have a Neutral recommendation on the stock.

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