City National Corporation Announces Definitive Agreement to be Acquired by Royal Bank of Canada
Agreement Seeks to Create Strong Combination of U.S. Private and Business Banking and Wealth Management Capabilities
Russell Goldsmith to Remain City National's Chairman and CEO and Will Lead RBC's U.S. Wealth Management Unit
City National Shares Valued at Approximately $93.80 Per Share in Cash and Stock
LOS ANGELES -- City National Corporation (NYSE:CYN) and Royal Bank of Canada (TSX:RY) (NYSE:RY) today announced a definitive agreement by which Royal Bank of Canada will acquire all outstanding shares of City National Corp. Total consideration is valued at approximately $5.4 billion at announcement, or approximately $93.80 per City National share, comprised of a mix of cash and common stock, based on RBC's closing stock price on January 21, 2015. The agreement has been approved by the boards of both companies.
In the United States, RBC already has a top-10 investment bank and the 8th largest wealth management firm. RBC has 8,000 employees in the U.S., including more than 3,000 in New York.
"We're very enthused about merging with RBC," said City National Chairman and CEO Russell Goldsmith. "This combination is a compelling opportunity. 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. It also will enhance what we can do for our clients and the communities we serve. My colleagues and I look forward to joining forces with this company that has tremendous financial strength, considerable resources and capabilities, and values that are very similar to those of City National."
RBC President and CEO Dave McKay said: "In line with RBC's strategic goals, 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. 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. Like us, City National has a strong commitment to client service and a prudent risk culture. RBC supports City National's community reinvestment program, and both RBC and City National are committed to making a meaningful, positive difference in the communities they serve. City National also has a strong leadership team and its employees are focused on building deep, long-lasting relationships with their clients."
Following completion of this transaction, Goldsmith will remain Chairman and CEO of City National, and he also will be responsible for RBC's U.S. Wealth Management unit. Goldsmith has served as City National's CEO since 1995, during which time the company's assets have grown from $3.1 billion to $32.6 billion.
RBC will pay, on average, approximately $47.25 in cash and 0.7489 of an RBC common share for each share of City National common stock. City National stockholders will be entitled to elect to receive the merger consideration in RBC common shares or cash, subject to certain adjustments and limitations. The aggregate consideration will be paid with approximately $2.7 billion in cash and approximately 44 million RBC common shares. This represents approximately a 50 percent cash and 50 percent share mix as of announcement. The total number of RBC common shares to be issued and the amount of cash to be paid in the transaction are both fixed.
As part of the transaction, the Goldsmith family stockholders have agreed to vote their City National holdings in favor of the transaction and to hold at least 50 percent of the RBC common shares received by them in the transaction until the third anniversary of closing.
The transaction is expected to be accretive to RBC's earnings per share (before amortization of intangibles) in the latter part of year three and accretive to earnings in year two.
Given RBC's strong capital position and internal capital generation, the company expects to maintain its ongoing capital management program, and to maintain a Common Equity Tier (CET) 1 ratio at closing broadly in line with its current level. RBC's CET 1 ratio was 9.9 percent as of October 31, 2014.
Closing is expected before the end of calendar 2015 subject to customary closing conditions, including receipt of required regulatory approvals and the approval of City National's stockholders.
Bank of America Merrill Lynch and Sandler O'Neill + Partners, L.P. served as financial advisors to City National. Wachtell, Lipton, Rosen & Katz served as legal advisor to City National. RBC Capital Markets, LLC and J.P. Morgan Securities LLC served as financial advisors, and Sullivan & Cromwell LLP and Osler, Hoskin & Harcourt LLP served as legal advisors to Royal Bank of Canada in this transaction.
A recording of a conference call will be available after 10:30 a.m. (ET) on January 22, 2015 until April 22, 2015 via telephone at: 905-694-9451 (locally) or 1-800-408-3053 (North American toll-free), passcode 2726258#.
About City National
City National has $32.6 billion in assets. The company's wholly owned subsidiary, City National Bank, provides banking, investment and trust services through 75 branches and offices, including 16 full-service regional centers, in Southern California, the San Francisco Bay Area, Nevada, New York City, Nashville and Atlanta. City National and its investment affiliates manage or administer $60.8 billion in client investment assets, including $48.1 billion under direct management. For more information, please visit cnb.com.
RBC is Canada's largest bank and one of the largest banks in the world, based on market capitalization. It is one of North America's leading diversified financial services companies, and provides personal and commercial banking, wealth management services, insurance, investor services and capital markets products and services on a global basis. RBC employs approximately 78,000 full- and part-time employees who serve more than 16 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 38 other countries. For more information, please visit rbc.com.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this communication may be deemed to be forward-looking statements under certain securities laws, including the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. These forward-looking statements include, but are not limited to, statements about the expected effects of the acquisition of City National Corporation by Royal Bank of Canada, the expected timing of the acquisition and other statements other than in relation to historical facts. Forward-looking statements are typically identified by words such as "believe", "expect", "foresee", "forecast", "anticipate", "intend", "estimate", "goal", "plan" and "project" and similar expressions of future or conditional verbs such as "will", "may", "should", "could", or "would".
By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, many of which are outside the control of Royal Bank of Canada and City National Corporation. Forward-looking statements speak only as of the date they are made and, except as required by law, neither party assumes an obligation to update the forward-looking statements contained in this communication. Any annualized, pro forma, projected and estimated numbers in this communication are used for illustrative purposes only, are not forecasts and may not reflect actual results. We caution readers not to place undue reliance on these statements as a number of important factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. These factors include, but are not limited to, the possibility that the proposed transaction does not close when expected or at all because required regulatory, shareholder or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the strength of the economy and competitive factors in the areas where Royal Bank of Canada and City National Corporation do business; the impact of changes in the laws and regulations regulating financial services and enforcement thereof; the effects of competition in the markets in which Royal Bank of Canada and City National Corporation operate; judicial or regulatory judgments and legal proceedings; Royal Bank of Canada's ability to complete the acquisition and integration of City National Corp. successfully; and other factors that may affect future results of Royal Bank of Canada and City National Corporation including timely development and introduction of new products and services, Royal Bank of Canada's ability to cross-sell more products to customers and technological changes.
We caution that the foregoing list of important factors is not exhaustive. Additional information about these and other factors can be found in Royal Bank of Canada's 2014 Annual Report on Form 40-F and City National Corporation's 2013 Annual Report on Form 10-K, each filed with the U.S. Securities and Exchange Commission (the "SEC") and available at the SEC's website (http://www.sec.gov). Royal Bank of Canada's material general economic assumptions underlying certain of the forward-looking statements in this press release are set out in its 2014 Annual Report under the heading "Overview and Outlook – Economic and market review outlook" and for each business segment under the heading "Outlook and priorities".
IMPORTANT ADDITIONAL INFORMATION
In connection with the proposed transaction, Royal Bank of Canada will file with the SEC a Registration Statement on Form F-4 that will include a Proxy Statement of City National Corporation and a Prospectus of Royal Bank of Canada, as well as other relevant documents concerning the proposed transaction. The proposed transaction involving Royal Bank of Canada and City National Corporation will be submitted to City National Corporation's stockholders for their consideration. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. STOCKHOLDERS OF CITY NATIONAL CORPORATION ARE URGED TO READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS REGARDING THE TRANSACTION WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Stockholders will be able to obtain a free copy of the definitive proxy statement/prospectus, as well as other filings containing information about Royal Bank of Canada and City National Corporation, without charge, at the SEC's website (http://www.sec.gov). Copies of the proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the proxy statement/prospectus can also be obtained, without charge, by directing a request to Royal Bank of Canada, 200 Bay Street, 4th Floor, North Tower, Toronto, ON, M5J 2W7, Attention: Investor Relations, 416-955-7802 or to City National Corporation, Investor Relations, 555 S. Flower St., 9th Floor, Los Angeles, CA 90071, 213-673-7615.
PARTICIPANTS IN THE SOLICITATION
Royal Bank of Canada, City National Corporation, their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding Royal Bank of Canada's directors and executive officers is available in its Annual Report on Form 40-F for the year ended October 31, 2014, which was filed with the SEC on December 3, 2014, and its notice of annual meeting and management proxy circular for its 2014 annual meeting of common shareholders, which was furnished to the SEC under cover of a Form 6-K filed with the SEC on January 31, 2014. Information regarding City National Corporation's directors and executive officers is available in City National Corporation's proxy statement for its 2014 annual meeting filed on Schedule 14A, which was filed with SEC on March 11, 2014. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement/prospectus and other relevant materials filed with the SEC. Free copies of this document may be obtained as described in the preceding paragraph.
Financial/Investors: Christopher J. Carey, 310.888.6777
Media: Cary Walker, 213.673.7615
Linda Mueller, 213.673.7619
STATEMENT OF THE FEDERAL HOUSING FINANCE AGENCY ON CERTAIN SUPER PRIORITY LIENS
FOR IMMEDIATE RELEASE
Today, the Federal Housing Finance Agency (FHFA) is alerting homeowners, financial institutions, and state authorities of the agency’s concerns with state-level actions that threaten the first-lien status of single-family loans owned or guaranteed by Fannie Mae and Freddie Mac. In particular, FHFA is concerned about state actions to create super-priority liens in two instances: 1) through certain energy retrofit financing programs structured as tax assessments and 2) through granting priority rights in foreclosure proceedings for homeowner associations. In issuing this statement, FHFA is acting in furtherance of its statutory obligations as regulator and conservator of Fannie Mae and Freddie Mac.
The existence of these super-priority liens increases the risk of losses to taxpayers. Fannie Mae and Freddie Mac, while operating in conservatorship, currently support the housing finance market by purchasing, guaranteeing, and securitizing single-family mortgages. One of the bedrock principles in this process is that the mortgages supported by Fannie Mae and Freddie Mac must remain in first-lien position, meaning that they have first priority in receiving the proceeds from selling a house in foreclosure. As a result, any lien from a loan added after origination should not be able to jump in line ahead of a Fannie Mae or Freddie Mac mortgage to collect the proceeds of the sale of a foreclosed property. However, as is detailed below, FHFA is concerned by some liens being advanced to “super-priority” status over Fannie Mae and Freddie Mac first-lien mortgages.
Energy Retrofit Financing Programs Structured as Tax Assessments
While FHFA fully supports energy retrofit financing programs to allow homeowners to improve energy efficiency, these programs must be structured to ensure protection of the core financing for the home and, therefore, cannot undermine the first-lien status of Fannie Mae and Freddie Mac mortgages. Some entities and localities are advancing the argument that single-family energy retrofit financing programs that are structured to make loans through the homeowner’s property tax assessment and require that borrowers repay their loans as part of their property tax bill should have priority over all other loans, including pre-existing Fannie Mae and Freddie Mac mortgages.1 One such program is known as the Property Assessed Clean Energy (PACE) program, which often provides loans as first-liens and is offered in California and in some other states. Localities offering these PACE loans threaten to move existing Fannie Mae and Freddie Mac mortgages to a second lien position and increase the risk of loss to the Enterprises and, by extension, to taxpayers.
In issuing this statement, FHFA wants to make clear to homeowners, lenders, other financial institutions, state officials, and the public that Fannie Mae and Freddie Mac’s policies prohibit the purchase of a mortgage where the property has a first-lien PACE loan attached to it. This restriction has two potential implications for borrowers. First, a homeowner with a first-lien PACE loan cannot refinance their existing mortgage with a Fannie Mae or Freddie Mac mortgage. Second, anyone wanting to buy a home that already has a first-lien PACE loan cannot use a Fannie Mae or Freddie Mac loan for the purchase. These restrictions may reduce the marketability of the house or require the homeowner to pay off the PACE loan before selling the house.
FHFA believes it is important for states and municipalities to understand these restrictions before continuing to offer the programs. Additionally, FHFA believes that borrowers should fully understand these restrictions prior to taking out a first-lien PACE loan.
In addition to aggressive enforcement of these existing policies, FHFA is continuing to explore other possible remedies and legal actions to protect the Enterprises’ lien position in response to first-lien PACE programs.
Homeowner Association Priority Status
FHFA is aware that, in certain jurisdictions, liens for unpaid homeowner association ("HOA") dues may be deemed to be senior to preexisting mortgage liens on a homeowner's property. As a result, on December 5, 2014, FHFA and Fannie Mae filed an action in federal court in Nevada, seeking a determination that a HOA's foreclosure sale is invalid and contrary to federal law to the extent that it purports to extinguish Fannie Mae's property rights. Federal National Mortgage Association v. SFR Investments Pool 1, LLC, No. 2:14-cv-02046 (D. Nev. December 5, 2014). FHFA has also intervened in Saticoy Bay, LLC Series 1702 Empire Mine v. Federal National Mortgage Assoc., No. 2:14-cv-01975 (D. Nev.), seeking a declaration that a prior HOA foreclosure sale is invalid to the extent that it purports to extinguish Fannie Mae's property interests.
These FHFA actions are based on federal law which precludes involuntary extinguishment of liens held by Fannie Mae or Freddie Mac while they are operating in conservatorships and bars holders of other liens, including HOAs, from taking any action that would extinguish a Fannie Mae or Freddie Mac lien, security interest or other property interest. Specifically, Title 12 USC Section 4617(j)(3) states that "[no] property of the Agency shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency, nor shall any involuntary lien attach to the property of the Agency." FHFA is authorized, as conservator, to bring this suit because Enterprise lien interests in collateral constitute property protected by this provision.
FHFA has an obligation to protect Fannie Mae's and Freddie Mac's rights, and will aggressively do so by bringing actions to void foreclosures that purport to extinguish Enterprise property interests in a manner that contravenes federal law.
1 PACE financing programs can be structured as secondary liens that stand behind the original mortgage and do not threaten the priority status of Enterprise loans.
The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $5.6 trillion in funding for the U.S. mortgage markets and financial institutions.
Stefanie Johnson (202) 649-3030 / Corinne Russell (202) 649-3032