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Royal Bank of Canada (NATHAN DENETTE/Nathan Denette/The Canadian Press)
Royal Bank of Canada (NATHAN DENETTE/Nathan Denette/The Canadian Press)

Eye on Equities

A new U.S. bank emerges as potential RBC takeover target Add to ...

Royal Bank of Canada hasn't appeared to be in any rush to bulk up its banking operations in the United States.

But Desjardins Securities Inc. analyst Michael Goldberg thinks there's a good chance RBC could be looking at doing some bargain hunting down south soon even as it continues to repair its struggling U.S. retail banking operations. "It has been our contrarian view for the past year that Royal is more likely to go big in the U.S. than to go home," Mr. Goldberg pointed out today.

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Mr. Goldberg believes three U.S. banks in particular would be attractive to RBC: BB&T Corp. , Regions Financial Corp. and SunTrust Banks Inc. . The key objective would be to strengthen Royal's weak U.S. commercial banking franchise.

But another name has now emerged: Columbus, Georgia-based Synovus Financial .

The Financial Times reported today that Synovus is considering its "strategic options," including a possible sale.

Synovus has several top-five deposit market positions, largely in mid-tier cities like Columbus and Athens, Ga., Birmingham and Huntsville, Ala., and Destin and Pensacola, Fla.

Mr. Goldberg sees Synovus offering several advantages to Royal Bank, including a much stronger market position and a better balance in its overall market mix. "The disadvantages are the severe credit issues that Synovus has endured, and the more widely held view among investors that Royal is expected to exit U.S. commercial banking once its operations have been fixed than that it will invest more into this business."

As such, initial investor reaction to such an acquisition would likely be negative, just like the market's reaction to Bank of Montreal's acquisition of Marshall & Ilsley, he suggested.

Upside: Mr. Goldberg rates Royal Bank as a "buy-average risk" with a price target of $58.

Recent selling in shares of Pacific Rubiales Energy Corp. has been overdone, especially given the recent strength in oil prices, contends TD Securities Inc. analyst Jamie Somerville. The Colombia-focused company's production growth should start to generate free cash flow in 2011, and grow to over $800-million in 2012, said Mr. Somerville. He predicts that there will be regular announcements of exploration success.

Upside: Mr. Somerville upgraded the stock to a "buy" from a "hold" and maintained a price target of $38.

BNK Petroleum Inc. shares have shot up 82 per cent since early December, a "logical" appreciation given initial encouraging drilling results in Poland, said TD Newcrest analyst Jamie Somerville. "However, until indications of commerciality are reported and BNK starts to delineate the discovery's extent, we believe it is appropriate to be relatively conservative," he said.

Upside: Mr. Somerville downgraded the stock to a "hold" from a "buy" but raised his price target by 50 cents to $5.50.

Investors "should be less aggressive about adding to current positions" in Nexen Inc. given recent stock price performance, said Raymond James Ltd. analyst Kristopher Zack. Nexen's market value could get a boost, however, if it is awarded a contract extension at its Yemen operations, he said.

Downside: Mr. Zack downgraded the stock to "market perform" from "outperform" but maintained a $26.50 price target.

Angle Energy Inc. has reported "decent" reserves growth, particularly in light oil, said CIBC World Markets Inc. analyst Adam Gill. He raised his core net asset value estimate by 29 per cent and was impressed with management's continued track record of delivering solid capital efficiencies in its drilling efforts.

Upside: Mr. Gill raised his price target by $1 to $10.25.

East Asia Minerals Corp. continues to make "measurable" progress at its exploration programs on its Miwah and Barisan projects in Sumatra, Indonesia, said Canaccord Genuity analyst Wendell Zerb. "Positive progress, however, remains in the shadow of project and country risks that we believe currently limit the full enthusiasm and speculative appeal for EAS," he said.

Downside: Mr. Zerb downgraded the stock to "hold" from "speculative buy" and maintained a $7.50 price target.

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