Local Community Development Corporations

Saturday, April 30, 2011

Speculation: BB&T suitor for RBC?

Analysts see BB&T as possible buyer for RBC Bank

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Analysts are pointing to BB&T Corp. as one of two main suitors for RBC Bank, the U.S. subsidiary of Royal Bank of Canada.

The other is PNC Financial Services Group Inc. of Pittsburgh, which is said to be pursuing a market beachhead in the Southeast.

According to Bloomberg News, Royal Bank has put RBC Bank and its 426 branches and $27.6 billion in assets up for sale. RBC is based in Raleigh and has 500 of its 5,000 employees there, along with its name on the RBC Center.

BB&T, based in Winston-Salem, is considered a preferred buyer because of its strength during the financial crisis and because it became the ninth-largest U.S. bank largely from takeover deals.

Analysts, however, are mixed on whether a deal for RBC — with a projected price tag between $3 billion and $4.6 billion — makes sense for BB&T.

They also aren't sure of BB&T's interest at that cost, whether an all-cash, all-stock or cash-and-stock request.

Such a deal would represent the second-largest in BB&T's history, after the August 2009 takeover of a collapsing Colonial Bank in a deal brokered by the Federal Deposit Insurance Corp. BB&T assumed all $20 billion of Colonial's deposits as part of the deal. Analysts question whether it could wring enough savings and gain enough market share to offset the cost of closing branches and providing severance pay in overlapping territories.

BB&T and Royal Bank officials declined to comment on the speculation. However, Royal Bank's top executives have made no secret in recent months of their overall disappointment with RBC. The bank has been unable to consistently post profits, particularly during the economic downturn.

That BB&T has surfaced as a favorite is not surprising given its financial prowess.

It remained solidly profitable throughout the financial crisis that began in late 2007 — one of few in its peer group. BB&T successfully completed and integrated Colonial, which opened Alabama and Texas to the bank and allowed it to expand in Florida.

Kelly King, its chairman and chief executive, has said he is interested in expanding in its markets, particularly in Texas. He said that deals may emerge as some banks realize the slow nature of the economic recovery, as well as the uncertainty about fee revenue because of financial reform.

"A number of institutions are beginning to think about the wisdom of remaining independent versus being part of a larger, high-quality organization," King said during the bank's recent first-quarter conference call with analysts. Because most of its larger competitors are on the acquisition sideline, King's comments have created a cottage industry for analysts contemplating expansion targets for BB&T.

However, when an opportunity arose last year to buy Sterling Bancshares Inc. of Houston, King declined to overpay for its 57 branches in Texas and $5.2 billion in total assets. Comerica Inc. announced a $1 billion stock deal for Sterling in January.

"Potential mergers are an important part of our future, but certainly not the most important compared with organic growth since we're in great markets," King said.

In the Colonial deal, there was little marketplace overlap for BB&T.

By comparison, BB&T has 1,401 branches in the six RBC markets — Alabama, Georgia, Florida, North Carolina, South Carolina and Virginia.

The biggest overlap would be in North Carolina, where BB&T has 361 branches and RBC has 182. Such a deal would give BB&T an 18.3 percent market share.

It wouldn't be the first time BB&T has made a big deal in North Carolina despite overlap concerns.

In August 1994, BB&T bought Southern National Corp. of Winston-Salem for $2.2 billion, giving it $18.8 billion in assets in the Carolinas. Analysts have called that deal BB&T's "coming out" purchase as a Southeast banking power.

The biggest marketplace benefit for BB&T would be moving from fifth to fourth place in Alabama by gaining 78 branches, many of which likely would not be closed.

It also would strengthen its fifth-place standing in Georgia (61 branches) and Florida (81), but the number of closed branches is likely to be higher.

Christopher Mutascio, an analyst with Stifel Nicolaus, expects that BB&T would need to cut RBC's annual operating expenses by 35 percent, or $20 million, to make the deal worthwhile.

He said that those savings likely would be offset by $20 million in merger expenses in 2011 and 2012.

"We do not know if BB&T will be a successful bidder — there could be several bids," Mutascio said. "We do not know what the price will be for a potential acquisition — especially if there is much competition.

"We do not know what loan marks BB&T could take on RBC Bank's low-quality loan book. If the marks are aggressive, it could significantly increase the cost of the transaction well above any reported purchase price," Mutascio said. "If the marks are too low, investors may criticize the company for not adequately scrubbing the book."

Robert Patten, a senior bank analyst with Morgan Keegan & Co., said that there is "a high likelihood that BB&T gets a deal or two over the next couple of years."

He expects it to remain "extremely disciplined from a pricing standpoint and won't stray far from its acquisition criteria."

Some analysts have speculated that BB&T may buy RBC as a defensive move to keep PNC out of its back yard.

Analysts have projected that a large regional bank would attempt a Southeast-Midwest strategy, with BB&T considered the top candidate from the Southeast. Those projections are a major reason why PNC, along with US Bancorp and Fifth Third Bancorp, have surfaced as possible suitors.

Arnold Danielson, the chairman of Danielson Associates of Bethesda, Md., said he doesn't believe that BB&T is overtly concerned about PNC as a competitor.

"They compete with it in the Washington area and elsewhere, and PNC is not considered a powerhouse," Danielson said.

"In the South, they will be even softer. The acquisition makes a lot of sense for BB&T without the need for a 'keeping someone out' rationale."

Tony Plath, a finance professor at UNC Charlotte, said BB&T doesn't have to buy RBC to eventually attract an additional $27.6 billion in assets from those six states.

"BB&T has better products, a better selling platform, better business bankers, and good retail positioning with its current stock of branches in all three markets," Plath said.

Plath expects PNC would be a more aggressive buyer since it's not in the Southeast at all.

"RBC would give them an entry-level foothold in a number of desirable Southeast markets," Plath said.

"A far better use of BB&T's capital is acquisition expansion into Texas, or further consolidation of their Florida position acquired through Colonial, or even movement into the Ohio Valley."


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Thursday, April 28, 2011

The Legacy Development Guide

The Legacy Development Guide (often called the "Legacy Plan", summary here) is a comprehensive plan that guides development in Winston-Salem and Forsyth County. The plan is the result of an on-going joint effort between the City-County Planning Board and a Citizens Steering Committee (the Legacy Oversight Committee). A public meeting seeking community input for updating the plan was held on April 26 at the new Milton Rhodes Center for the Arts. A legal spin on the topic is that such plans are required by state law and planners and public officials are required to follow the dictates of the plan in making land-use decisions.

Click here for an article in the Winston-Salem Journal featuring an interview with the City-County Planning Director, Paul Norby, about the Legacy Plan.

Tuesday, April 19, 2011

3 of the 4 Major Economic Development Agencies in W-S to Combine Efforts

There are 4 Major economic development agencies in Winston-Salem: the Chamber of Commerce, the Downtown Winston-Salem Partnership (DWSP), Winston-Salem Business, Inc., and the Winston-Salem Alliance. (Each of their websites can be accessed via the links to the right of this article with the exception of the Winston-Salem Alliance which does not maintain a website.)

Each of these agencies has a distinct mission. The Chamber of Commerce seeks to foster the development of existing local businesses, Winston-Salem Business, Inc. markets W-S to outside businesses and recruits them here, the Winston-Salem Alliance is a group composed of influential industry leaders in the community, and, as the name implies, the DWSP has a geographic element to its mandate.

According to an article in today's Winston-Salem Journal, a plan is afoot which will combine the fundraising and strategic planning efforts of the Winston-Salem Alliance, W-S Business Inc., and the DWSP. Leaders of the groups believe that having a united Winston-Salem economic development front will have a synergestic effect both on local fundraising as well as broader strategic development goals for the city. The Chamber of Commerce will remain independent and focused on its mission of fostering growth of existing members.

Read the Winston-Salem Journal article here.

Thursday, April 7, 2011

U.S. Airways to Add 200 Jobs in W-S

US Airways Group Inc. plans to add up to 200 full-time jobs at its Winston-Salem reservations center this year.

The airline intends to bring work there from outside the country. The carrier’s centers in Phoenix, Ariz., and Reno, Nev., will gain jobs as well.

The shift in jobs stems from an agreement with the Communications Workers of America and the International Brotherhood of Teamsters, which represent more than 6,000 customer-service employees and reservations agents.

The agreement calls for all positions supporting US Airways’ sales and services calls originating in the United States to be brought to U.S. locations by October.