PhillyDeals: Report: TD Bank mulling offer for Citizens Bank

Royal Bank of Scotland owns Citizens Bank of Pa.
Royal Bank of Scotland owns Citizens Bank of Pa. (KELVIN MA / Bloomberg)
Posted: October 16, 2013

The Sunday Times of London stirred bank-watchers across Britain when it reported that Canada-based TD Bank was thinking about making a $13 billion offer to buy Citizens Bank of Pennsylvania, owned by Royal Bank of Scotland (RBS).

The story, quickly picked up by Reuters and other media, wasn't sourced to anyone in particular, making it read like the kind of trial balloon that fee-hungry London and New York investment bankers like to float in the hope they can get other potential buyers interested. That must work from time to time, or they wouldn't keep trying it.

RBS said this year it hoped to sell some shares of Citizens but not the whole operation, which has been profitable.

Just last week, RBS named veteran investment banker Bruce Van Saun as chairman and chief executive of its U.S. operations, whose Pennsylvania arm is run by Daniel K. Fitzpatrick, a leader in the local chamber of commerce and other organizations that try to boost our perennially slow-growing regional economy.

Neither TD nor Citizens is based in Philadelphia, so the rumor of a deal doesn't cause quite the kind of mass career terror that followed the sales of CoreStates, MBNA, and other big banks in our part of the world. Those transactions destroyed thousands of headquarters jobs and helped depress commercial office rents for years.

But both banks do have extensive branch networks here - TD runs the former Commerce Bank of Marlton, while Citizens is heir to the vanished Girard and PSFS banking operations. That would mean some offices would likely be closed and consolidated, idling hundreds.

The number of bank branches in Pennsylvania has dropped every year since 2008. Now that so many people are banking online, how many local branches of big multinational banks can the market support?

A combined TD-Citizens would rival Wells Fargo & Co. as the region's dominant branch bank and lender.

Home slowdown

Since Bank of America and other giant lenders pulled back from the home-lending business after the crisis of 2008, San Francisco-based Wells Fargo, the dominant bank in Philadelphia and dozens of other metro markets, has emerged as the nation's dominant mortgage-lender.

So, it's a bit alarming to see that mortgage-banking income, originations, and loans in process fell precipitously at Wells Fargo during the last quarter.

Some of this was expected - loan rates stopped dropping during the quarter, refinancings plunged - but the size of the drop was more than Wall Street expected.

Analyst Anthony Polini at Raymond James & Associates is still telling clients to buy the stock, noting that Wells Fargo has boosted investment gains, business loans, and fees, and keeps showing "above-average profitability."

But analyst Scott Siefer at Sandler O'Neill + Partners warns that Wells Fargo is headed for "tougher" times over the next year, since the bank is unlikely to boost other businesses fast enough to make up for slower home refinancing in the current weak economy.