Canadian financial services provider Royal Bank of Canada (RY,RY.TO: Quote) agreed Tuesday to buyout the remaining 50 percent stake in its 50:50 joint venture RBC Dexia Investor Services Ltd. for 837.5 million euros or C$1.1 billion in cash. The deal, subject to regulatory approvals, is expected to close in mid-2012.
The institutional investment joint venture was formed in January 2006 and was equally owned by Royal Bank of Canada and Franco-Belgian financial institution Dexia Group (DEX.L, DXBGF.PK). Dexia has recently been renamed Banque Internationale à Luxembourg SA and was the first major European bank to need a bailout in 2011 following European's sovereign debt crisis.
Dexia had revealed last month that it has decided to its 50 percent stake in the joint venture, while RBC had announced in October that it was in talks to acquire the whole of RBC Dexia.
Toronto, Canada-based RBC, which will own 100 per cent of RBC Dexia, said it expects the deal to add moderately to its earnings in 2013.
"The transaction announced today has significant strategic value to us, not only as a standalone business but also in its complementary capabilities to RBC. It is a strong business that generates stable revenue in an attractive sector that is well positioned for long-term growth," President and CEO Gordon Nixon said in a statement.
RBC's revaluation of its existing investment in the joint venture resulted in an after-tax non-cash loss of about $170 million, primarily reflecting the write-down of intangibles. The majority of this loss will be recorded in the second fiscal quarter.
Following the closure of the deal, RBC's January 31, 2012 Tier 1 capital ratio on a pro forma basis is expected to be reduced by about 25 basis points. The disposition of our U.S. retail banking operations, which closed on March 2, 2012 , improved RBC's Tier 1 capital ratio by 100 basis points.
In conjunction with deal, RBC Dexia also sold 1.4 billion euros or C$1.9 billion in nominal value of Dexia Group fixed income securities back to the Dexia Group and acquired about an equivalent amount of U.S. dollar-denominated securities consisting primarily of notes issued by large global financial institutions.
RBC Dexia said it will incur a loss from the sale of the Dexia Group securities and RBC's proportionate share of this loss is about $30 million after tax, which will be recorded in the second quarter.
With $2.7 trillion in client assets under administration, RBC Dexia Investor Services ranks among the world's top 10 global custodians. It offers institutional investors worldwide an integrated suite of products, including global custody, fund and pension administration, securities lending, shareholder services, analytics and other related services.
RY closed Monday's regular trading session at $59.19, up $1.52 on a volume of 0.93 million shares. RY.TO closed on the Toronto Stock Exchange at C$58.74, down C$1.12 on a volume of 2.64 million shares.
by RTT Staff Writer
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