Royal Bank of Canada is ready to take another shot at U.S. banking, agreeing to buy City National in Los Angeles.
RBC will pay $5.4 billion, or $93.80 a share, in cash and stock for the $33 billion-asset City National, parent of Convergent Wealth Advisors, a troubled $8 billion-plus wealth management firm based in Washington, D.C. The a deal that is expected to close by the end of this year. Based on the price, this is one of the biggest bank acquisitions in recent memory.
The RBC deal will have a considerable impact on wealth management, according to industry consultant Jamie McLaughlin, who specializes in the ultrahigh-net-worth market.
"RBC will ultimately incorporate all the City National pieces into their existing platforms," McLaughlin says. "They'll be a formidable player. Banks can win in wealth management in this business cycle simply because they have capital, but few have exploited the opportunity."
Convergent was rocked last October by the apparent suicide of David Zier, the firm's chief executive, and questions surrounding irregularities that were found in a private fund Zier had been running since 1997. Zier Asset Management was run outside of Convergent, but the firm monitored Zier's reported trades.
The black eye for the firm sparked what one competitor called a "feeding frenzy" for Convergent clients.
In December, at least seven advisors left Convergent, including Steve Aucamp, who ran the firm's UHNW division for clients with more than $10 million in assets. Aucamp decamped to open a new Presidio Group office in Washington, D.C.
In addition, Steve Lockshin who founded Convergent 20 years ago and sold the firm to City National Bank in 2007, resigned as chairman of the board. The resignation was part of a "planned transition," Lockshin said, but was "accelerated by the unfortunate recent events."
"We believe this combination creates a powerful expansion platform for focused long-term growth in the country which we view as our second home market," Dave McKay, RBC's president and chief executive, said in a press release Thursday. "In line with RBC's strategic goals, City National serves high-net-worth and commercial client segments in select high-growth markets, and represents a unique opportunity to complement and enhance our existing U.S. businesses and product offering."
"This combination is a compelling opportunity," Russell Goldsmith, City National's chairman and chief executive, added. "It will deliver significant value to City National shareholders along with the opportunity to participate in the growth of RBC. It will promote both continuity and growth, enabling our outstanding team of colleagues to maintain and even strengthen City National's value proposition."
Goldsmith, who has led City National since 1995, will remain chairman and CEO of City National, and he also will be responsible for RBC's U.S. wealth management unit. The Goldsmith family has agreed to vote their City National holdings in favor of the deal and to hold at least 50% of the RBC hares they receive for three years after the deal's closing.
RBC said it expects the deal to be accretive to its earnings per share, excluding amortization of intangibles, by the end of its third year, though it should start adding to the bottom line in year two.
Bank of America Merrill Lynch and Sandler O'Neill advised City National, while Wachtell, Lipton, Rosen & Katz provided legal counsel. RBC Capital Markets and J.P. Morgan Securities advised RBC, which received legal advice from Sullivan & Cromwell and Osler, Hoskin & Harcourt.
This would be RBC's second attempt at traction in U.S. banking, though this time around the move seems more focused on affluent clients. The company put together a string of bank acquisitions in the southeastern United States, starting with Centura Banks in 2001, before selling its operations to PNC Financial Services in 2012 for nearly $3.5 billion.
Paul Davis is a reporter for American Banker. Charlie Paikert contributed reporting.
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