Royal Bank of Canada is to acquire the 50 per cent stake that it does not already own of the joint venture RBC Dexia Investor Services Limited (RBC Dexia) from Banque Internationale à Luxembourg SA (BIL) (formerly Dexia Banque Internationale à Luxembourg SA) for a total consideration of EUR837.5 million (CAD1.1 billion) in cash. Following the closing of the transaction RBC will own 100 per cent of RBC Dexia.
RBC Dexia is a top 10 global custodian that serves a diverse base of institutional investors through a wide range of advice and services including global custody, fund and pension administration, shareholder services and treasury services. It consistently wins awards globally for excellence in execution and client service.
"We have developed an in-depth understanding of the global custody business' strong fundamentals and opportunities for growth through our longstanding Canadian custody operations and more recently, through the RBC Dexia joint venture. The transaction announced today has significant strategic value to us, not only as a standalone business but also in its complementary capabilities to RBC," says Gordon M Nixon, President and Chief Executive Officer, RBC. "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."
"Full ownership of RBC Dexia will allow us to leverage RBC's excellent reputation and financial strength to win additional business and drive growth," says Jim Westlake, Group Head, International Banking and Insurance, RBC. "This is a very scalable business with leading infrastructure and processes already in place. It is well positioned to benefit from higher interest rates and an improvement in market asset values."
In conjunction with entering the agreement, RBC Dexia has sold EUR1.4 billion (CAD1.9 billion) in nominal value of Dexia Group fixed income securities back to the Dexia Group and acquired approximately an equivalent amount of US dollar-denominated securities consisting 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 approximately USD30 million after tax, which will be recorded in the second quarter. RBC Dexia's capital position is not materially impacted from this sale and purchase of securities.
With this acquisition of the other 50 per cent in RBC Dexia that RBC does not already own, we are required, from an accounting perspective, to revalue our existing investment in the joint venture to reflect the purchase price. This revaluation results in a non-cash loss of approximately USD170 million after tax, primarily reflecting the write-down of intangibles. The majority of this loss will be recorded in the second fiscal quarter.
During the time between the announcement of this transaction and closing, we will continue to revalue our investment in the joint venture and RBC's proportionate share of any earnings in the joint venture will be offset by a corresponding accounting adjustment.
RBC expects the acquisition to be moderately accretive to earnings in 2013.