Fed Nod to PNC-RBC Deal

PNC Financial Services Group Inc. ( PNC - Analyst Report ) received the approval from the Federal Reserve to acquire RBC Bank (USA), the U.S. retail banking subsidiary of Royal Bank of Canada ( RY - Snapshot Report ) . The approval takes PNC Financial a step nearer the completion of the deal, slated for the first quarter of 2012.

In June 2011, PNC Financial announced its plan to purchase RBC Bank (USA) for $3.45 billion. The acquisition would help PNC Financial to expand its footprint in the Southeast markets. It would also make PNC Financial the fifth among U.S. banks, with 2,870 branches.PNC Financial expects the acquisition to be immediately accretive to earnings (excluding integration costs) upon closing.

Recently, PNC Financial has been notified that the Board of Governors of the Federal Reserve System had no objection to the proposed revisions to the capital actions submitted by the company as these pertain to the acquisition of RBC Bank (USA).

Accordingly, the company does not plan to issue any share of PNC common stock as part of the consideration payable to Royal Bank of Canada at closing, or to repurchase any PNC Financial common share in 2011.

PNC in Expansion Mode

Of late, PNC Financial completed acquiring the 27-branch retail bank franchise in Georgia from Flagstar Bank, a subsidiary of Flagstar Bancorp Inc. ( FBC - Snapshot Report ) . Flagstar Bank sold the leases associated with the branches and the associated businesses and retail deposits worth approximately $210 million at the closing. PNC paid the Bank net book value of the acquired real estate plus fixed and other personal assets associated with the branches. The deal is a strategic fit for PNC Financial as it will expand operations in Atlanta and add to its competitive edge.

With over 70 branches located in the Atlanta metro area, including those that it plans to add from its pending acquisition of RBC Bank (USA), this purchase would aid in expanding its retail banking business. It would also leverage its corporate banking and wealth management prospects.

In mid-2011, PNC Financial also completed the acquisition of 19 branches from a subsidiary of BankAtlantic Bancorp Inc. ( BBX ) . Additionally, two related facilities in the Tampa - St. Petersburg area and associated deposits were also handed over to PNC as part of the sale.

Our Take

PNC's continued strengthening of balance sheet, with focus on risk and expense management, should propel its earnings ahead. Benefits from the 2008 National City acquisition continue to exceed the company's expectations. We also believe that the company's latest acquisition spree would be accretive to its revenue.

Yet, the top-line headwind is expected to remain in the near term, with continued soft demand for loans and a low interest rate environment. 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.