Royal Bank buys Mellon retail arm for $2.1 billion

London, July 17: Britain’s second-biggest bank, Royal Bank of Scotland Plc, on Tuesday took a further step in its US expansion drive, agreeing to buy the retail arm of Mellon Financial Corp for $2.1 billion in cash.

Analysts said the acquisition may be a sign of things to come for the UK’s other big banks, whose ambitions are being hemmed in at home. Royal Bank unveiled a 2.0-billion pounds ($2.79 billion) share placing to fund the deal — helping send its shares down around 2.4 per cent — and said the issue was designed to maintain the bank’s capital ratios. The acquisition is expected to be completed in the fourth quarter of the year.

Royal Bank also said half-year underlying earnings were running ahead of market expectations and that interest margins were largely unchanged, though falling interest rates were likely to cause “some small erosion going forward”.

Chief Executive Fred Goodwin said Mellon would give Royal Bank a strong position in Pennsylvania, expanding its east coast presence, and that it was on the lookout for more US deals. Goodwin said Mellon’s loan book was sound and sought to ease concerns that Royal Bank might be buying into the US on the cusp of a major deterioration in credit quality. “We are very comfortable with the credit quality (of the Mellon loan book),” Goodwin told reporters on a conference call. Mellon’s retail, small business and middle market commercial banking businesses will give Royal Bank a presence in Pennsylvania.

-- Reuters