“We certainly had a lot of the wrong assets in the wrong places at the wrong time.”

That’s the refreshingly candid assessment offered by Jim Westlake, who runs

Royal Bank of Canada’s (TSX: RY, NYSE: RY) international banking operations, to Bloomberg TV after his company announced a USD3.62 billion deal to unload its US retail banking and credit card assets. “A lot of things went bad before we had a chance to do a lot of cleanup.”

That work will now be done by PNC Financial Services Group (NYSE: PNC), the sixth-largest US bank in terms of deposits. PNC wants to expand its operations in the American Southeast beyond its existing Florida base; taking on Raleigh, North Carolina-based RBC Bank adds about 420 branches across the region. Mr. Westlake pointed out that PNC has a solid track record integrating acquisitions and that there’s no overlap between its existing Southeast operations and the acquired RBC Bank assets.

But clearly Royal Bank, No. 1 among the Great White North’s Big Six, wanted out of the US. RBC Bank posted 11 straight losing quarters, or a total of USD3.1 billion through Mar. 31, 2011. The parent’s desire to get rid of the subsidiary had as much to do with the circumstances of its US position, when it bought and where the consumer-focused retail branches were concentrated. It established a US retail presence with the USD2.16 billion acquisition of what was Centura Banks in June 2001.

Centura was a North Carolina-focused bank. But rapid expansion to other Southeastern states, including Georgia, in the latter half of the 2000s left RBC particularly exposed to the implosion of the US housing market. It lacked the scale south of the border to build business and commercial client bases as well as to ride out the weakness afflicting American consumers.

PNC has the option to pay USD1 billion of the total USD3.62 billion purchase price in stock, which means Royal Bank is likely to maintain an interest in US retail banking. And Royal Bank continues to operate in US wealth management and investment banking markets, another indication that there is some economic life south of the border. So, too, do the continuing efforts of Royal rivals Toronto-Dominion (TSX: TD, NYSE: TD) and Bank of Montreal (TSX: BMO, NYSE: BMO), which continue to pursue opportunities to add US financial services assets.

TD, the No. 2 bank in Canada, closed its USD6.3 billion acquisition of Chrysler Financial Corp–which is no TD Auto Finance–on Apr. 1. And last December Bank of Montreal agreed to buy distressed Midwest bank Marshall & Ilsley Corp for USD4.1 billion in stock; BMO will combine M&I’s Wisconsin-headquartered operation with its existing Chicago-based Harris Bank unit.

The Bay Street analyst community is bullish on the deal from Royal Bank’s perspective.

Royal Bank will take a CAD1.6 billion writeoff–stemming from a goodwill charge of CAD1.3 billion as well as a markdown of the value of RBC Bank’s US loan book–and the total transaction value still equals approximately 97 percent of RBC Bank’s tangible book value, lower than the average for similar, recent deals. However analysts expect unloading the US retail assets will be immediately accretive to earnings, and it should boost Royal Bank’s capital ratios as well, lifting Tier 1 capital 140 basis points and Tier 1 common equity 100 basis points.

Royal Bank will use case proceeds of at least USD2.62 billion (based on a USD1 billion maximum equity component) to boosts its investment banking and wealth management operations, domestically and in the US.

For the investor Royal Bank’s maneuvers demonstrate that right now there are smart ways and there are not so smart ways to allocate capital in the US. Roger Conrad discusses Canadian Edge companies’ forays south of the border in a June feature article, “Canada Heads South.” My colleague Elliott Gue and our friends at Personal Finance will take a deeper look at how to make money in America in the July 27, 2011, issue.

Canada vs. America

We haven’t been shy in identifying the relative strength of Canada versus the United States in this space and in the pages of Canadian Edge. The fine folks at Worthwhile Canadian Initiative have provided yet more data that highlight why the Great White North is experiencing quite a different economy than their North American partner.

Here are the three serious problems illustrated in a series of graphs:

• US real per capita net worth is back to what it was back in 1999.
• The problem is on the assets side of the balance sheet.
• Although US housing prices fell dramatically, non-housing assets declined significantly as well.
• Aggregate household liabilities have also fallen in the US, but not by enough.
• The last time the real, per capita value of US housing equity was at its current level was 1978.

This is not a time to give up on the US. It is time to be selective. It is also time to have a portion of your assets allocated to what remains the strongest economy in the developed world.

The Roundup

It’s evident that US economic growth has been and is likely to remain underwhelming for the foreseeable future. Although Canada’s fortunate abundance of natural resources and its responsible management of same have left it in good position to benefit from the continuing emergence of middle-class-style consumers in previously underserved economic regions, the fact remains that it’s still the junior partner to the US in the largest bilateral trade relationship in the world. That means that what happens in America matters in Canada.

The question is what can or will be done to juice the US economy. The reality, as ever, will be more complex than the company forecast, but a national employment rate of 9 percent is a cry for shovel-ready projects. And there is perhaps no project more “shovel ready”–and with significant potential employment impact–than TransCanada Corp’s (TSX: TRP, NYSE: TRP) extension of its Keystone Pipeline complex.

The current state of American politics means there will be no new spending from Washington, DC. Meanwhile, the US Federal Reserve’s second round of open-market Treasury purchases is winding up, and the central bank has stated that it won’t pursue a third program of quantitative easing. The Fed will, however, maintain its still historically low target overnight interest rate, providing meaningful accommodation to banks and, theoretically, businesses and consumers with the capacity to borrow and spend.

And this week the International Energy Agency (IEA) announced a plan to release 60 million barrels of oil onto the global market over the next 30 days period, to alleviate problems caused by the shutdown of Libyan crude exports due to civil unrest. The US will contribute 30 million barrels from its Strategic Petroleum Reserves. This is clearly a move designed to alleviate as well the pressure rising prices at the pump put on consumers, at a time when the 2012 election season is already heating up.

The reality is this is a short-term fix that won’t solve long-term energy supply issues. On the other hand, US State Dept approval of the Keystone XL project would unlock low-cost crude from Canada and the Williston Basin in the Upper Midwest US to the Gulf Coast for refining. According to TransCanada approval would mean 15,000 manufacturing and construction jobs.

There are longer-term benefits for US oil producers, refiners and consumers. It would also generate new local, state and federal revenue in the form of taxes. The reality of jobs created is more complex than the company’s simple five-digit forecast, and there will be environmental costs associated with a petroleum pipeline of this nature. But on balance the immediate stimulative impact as well as the long-term security payoff from expanding domestic energy infrastructure outweigh these considerations.

Following are estimated (in most cases) and confirmed (for a couple) second-quarter reporting dates for the CE Portfolio. We’ll update the list as official dates are announced.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–Jul. 29 (estimate)
• Artis REIT (TSX: AX-U, OTC: ARESF)–Aug. 11 (estimate)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–Aug. 9 (estimate)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Aug. 5 (estimate)
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPUF)–Aug. 9 (estimate)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–Aug. 10 (estimate)
• Capstone Infrastructure Corp (TSX: CSE, OTC: MCQPF)–Aug. 9 (estimate)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–Aug. 12 (estimate)
• Colabor Group Inc (TSX: GCL, OTC: COLFF)–Aug. 4 (estimate)
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–Aug. 10 (estimate)
• Extendicare REIT (TSX: EXE-U, OTC: EXETF)–Aug. 5 (estimate)
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–Aug. 4 (estimate)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–Aug. 10 (confirmed)
• Just Energy Group Inc (TSX: JE, OTC: JUSTF)–Aug. 12 (estimate)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–Aug. 3 (confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–Aug. 5 (estimate)
• Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–Aug. 5 (estimate)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–Jul. 29 (estimate)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–Aug. 1 (confirmed)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–Jul. 28 (estimate)
• Ag Growth International Inc (TSX: AGF, OTC: AGGZF)–Aug. 11 (estimate)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–Aug. 4 (estimate)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–Jul. 28 (estimate)
• Daylight Energy Ltd (TSX: DAY, OTC: DAYYF)–Aug. 3 (estimate)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Aug. 9 (estimate)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–Aug. 5 (confirmed)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–Aug. 5 (estimate)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–Aug. 12 (estimate)
• Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE)–Aug. 4 (estimate)
• Perpetual Energy Inc (TSX: PMT, OTC: PMGYF)–Aug. 10 (estimate)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–Aug. 10 (estimate)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–Aug. 5 (estimate)
• Provident Energy Ltd (TSX: PVE, NYSE: PVX)–Aug. 11 (estimate)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–Aug. 9 (estimate)
• Yellow Media Inc (TSX: YLO, OTC: YLWPF)–Aug. 5 (estimate)