The Royal Bank of Canada (RBC) this morning completed the acquisition of Dexias 50% stake in global custodian RBC Dexia. The acquisition from Banque Internationale a Luxembourg S.A. (BIL) represents the 50% stake that did not already own and makes RBC the sole owner of the business, which will be rebranded RBC Investor Services.
This disposal is a part of the divestment process approved by the Board of Directors of Dexia in October 2011. All the required regulatory approvals, including the European Commission, have been obtained.
The Canadian bank first announced it had bought the stake for 837.5 million at the beginning of April. The deal had been brewing for more than six months and occurred on the back of the sovereign debt crisis in Europe, which forced state owned banks, particularly those in France, Italy and Spain to sell non-core business in order to shore up their balance sheets. However, Dexia said today that the capital gain resulting from that transaction is not significant and the sale will have no significant impact on the Group’s solvency or liquidity.
In October, Luxembourg Finance Minister Luc Frieden acknowledged that the parent companies in the RBC Dexia joint venture were in discussions about an RBC buyout of Dexias half, which Frieden said at the time was imminent. He said then that RBC planned to exercise its first right of refusal to buy the stake when Dexia put its half of the business up for sale. In November, RBC CEO Gordon Nixon said the bank was examining what our opportunities are in a possible buyout, and in January Dexia CEO Pierre Mariani said he expected a deal to be reached in weeks.
Commenting on the purchase when it was first announced, RBCs Nixon said in a statement: We have developed an in-depth understanding of the global custody business strong fundamentals and opportunities for growth through our long-standing Canadian custody operations and more recently, through the RBC Dexia joint venture.
Nixon said the transaction has significant strategic value to RBC, not only as a standalone business but also in its complementary capabilities to the bank. “It is a strong business that generates stable revenue in an attractive sector that is well positioned for long-term growth. It has a premier list of institutional investor clients globally and fits well with our diversification strategy.
As part of the deal, RBC Dexia sold 1.4 billion of Dexia Group fixed income securities back to Dexia and purchased an equivalent amount of U.S. dollar-denominated securities consisting primarily of notes issued by large, global financial institutions, RBC says. RBC Dexia will incur a loss on the sale, with RBCs share of the loss being approximately $30 million, which will be recorded in the second quarter. RBC also has had to revalue its investment in the joint venture given its own purchase price of Dexias half. The revaluation will result in a non-cash loss of about $170 million after tax for RBC, which also will be recorded in the second quarter.
The deal also had a material impact on RBC, who’s net income for the quarter ended April 30, 2012 fell 7% from C$1,682 million for the prior corresponding period on the back of the takeover. The bank reported a C$202 million acquisition loss from buying the stake.
Todays completion marks the official end of a six-year partnership whereby RBC Dexia Investor Services has made its mark as one of the world’s principal custodians, recognized for its quality of services in numerous industry awards.
Now, with the benefit of stability of a Canadian banking parent, RBC Investor Services will continue with business as usual while focusing on geographic expansion with support of an A2 (Moody’s), AA- (S&P) credit rating.
The industry fundamentals are very attractive and this business is positioned for long-term growth, said Jim Westlake, group head, International Banking and Insurance, RBC.
Jose Placido, CEO of RBC Investor Services, added: Our client benefit from RBCs financial strength, complementary capabilities through wealth management and capital markets, and commitment to growth.
RBC Investor Services has 5,500 professionals in 15 markets globally and does not anticipate any changes to staff numbers or locations as a result of the new ownership structure, said spokesperson Alex Clelland.
(JDC)