Royal Bank Looking to Sell Liberty Life

Published: Tue 10 Aug 2010

Perry Begay

The Royal Bank of Canada, the worst-performing bank stock in the country in 2010, has solicited prospective buyers for the U.S. insurance division it acquired ten years ago for $650 million, according to people familiar with the matter.

Goldman Sachs Group Inc. has been approaching potential buyers for Liberty Life Insurance Company on behalf of Canada's largest bank for months now, according to the sources, who spoke on the condition of anonymity because the discussions are private. The life insurer is likely to fetch a sale price of less than $1 billion.

Gordon Nixon, the chief executive officer, is revamping the United States operations of the Toronto-based bank after ten years of expansion through acquisition. He jettisoned more than 1,000 jobs and scaled back commercial lending after performing a C$1 billion ($973 million) writedown in 2009. The United States business has added eight consecutive quarterly losses at the lender's international unit.

Mr. Nixon, age 53, said in an interview in March that "everything is on the table" to remedy the U.S. consumer bank, including a merger, sale, or acquisition.

A spokesperson for the Royal Bank, Kerry Gaetano, refused to comment, claiming the lender does not comment on speculation and rumors. A Goldman Sachs spokesperson in New York, Andrea Rachman, refused to comment.

United States Acquisitions

Royal Bank came into the U.S. insurance business with the acquisition of Liberty Life in addition to several other insurance-related divisions, from Liberty Corporation of Greenville, SC.

The bank has devoted over $7 billion on United States acquisitions since 1998, according to data from Bloomberg, including the acquisitions of Centura Banks Inc. and Dain Rauscher Corp. in 2001.

In the second fiscal quarter, the insurance profit of Royal Bank declined 5.3 percent to C$107 million partially because of higher claims expenses. The U.S. division represented almost one-third of the lender's insurance revenue of C$1.33 billion for the period. The overall banking business in the United States contributed roughly one-quarter of the bank's 2009 revenue of C$29 billion.

The company will release fiscal third-quarter numbers on August 26.

Yesterday, Royal Bank increased 47 cents to C$53.45 in trading on the Toronto Stock Exchange. The stock has dropped 5.2 percent in 2010, the poorest performer among the nine lenders in the Standard and Poor's Index.