Reuters: Regulatory News: UPDATE 2-RBC to buy full ownership of RBC Dexia

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UPDATE 2-RBC to buy full ownership of RBC Dexia Apr 3rd 2012, 13:50 Tue Apr 3, 2012 9:50am EDT By Euan Rocha April 3 (Reuters) - Royal Bank of Canada said it would acquire the 50 percent stake in custody joint venture RBC Dexia that it does not already own from Banque Internationale à Luxembourg, or BIL, for 837.5 million euros (C$1.1 billion). RBC Dexia, which safeguards securities for institutional investors, also provides fund and pension administration services, along with other services to its clients around the world. Canada's largest bank, said it expected the acquisition to boost its earnings moderately in 2013. RBC Dexia is "a strong business that generates stable revenue in an attractive sector that is well positioned for long-term growth," RBC Chief Executive Officer Gordon Nixon said in a statement on Tuesday. The announcement on Tuesday came as the European Union opened an investigation to determine whether the sale of BIL, the Luxembourg-ba sed retail banking ar m of Franco-Belgian lender Dexia, was conducted properly. Qatar's al-Thani royal family has agreed to acquire 90 percent of BIL through their Precision Capital investment group, with the Luxembourg state taking the remaining 10 percent. Last year, RBC said it was "examining its opportunities" involving its joint venture with Dexia after the European lender announced that it had started the process of disposing its stake in RBC Dexia. "This announcement was not a surprise as it had been widely anticipated since the emergence of Dexia's issues within the context of the European crisis," Barclays analyst John Aiken wrote in a note to clients. RBC had a right of first refusal on the asset, which had assets under administration of $2.7 trillion at the end of 2011. RBC Dexia, headquartered in London, has 5,500 employees, who serve clients from offices spread across four continents. CAPITAL RATIOS The bank said the acquisition of the remaining 50 percent stake in RBC Dexia is expected to reduce RBC's Tier 1 capital ratio slightly, but the impact of this is largely offset by the recent sale of its U.S. retail banking operations. Toronto-based RBC said, its capital ratios - a key measure of a bank's financial strength - along with its credit ratings and balance sheet still rank among the strongest of all banks globally. " The anticipated reduction in capital ratios results in part from the fact that RB C is purchasing the other half of the j oint venture b elow book value," said Aiken. " A s such, this should ultimately be a successful transaction, assuming that Roya l is able to continue to grow the business." Due to accounting regulations RBC said it plans to revalue its existing investment in RBC Dexia to reflect the purchase price being paid. The revaluation will result in a non-cash loss of about $170 million after tax, primarily reflecting the writedown of intangibles. RBC will record most of the loss in its second fiscal quarter. In conjunction with the deal, RBC Dexia has sold 1.4 billion euros ($1.86 billion) in nominal value of Dexia Group fixed income securities back to the Dexia Group. In return it has bought an equivalent amount of U.S. dollar-denominated securities that consist primarily of notes issued by large global financial institutions. RBC Dexia 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, said the Canadian bank, which will also book this loss in the second quarter. The sale and securities purchase will not have a material impact on RBC Dexia's capital position. The acquisition, which is subject to regulatory approvals, is expected to close in mid-2012. Goldman Sachs and RBC Capital Markets served as financial advisers to RBC on the transaction. Link this Share this Digg this Email Reprints

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