In a bid to boost its present consumer and commercial auto
Royal Bank of Canada
) announced the acquisition of the automotive finance and deposit
business of Ally Financial Inc. in Canada. RBC shelled out $3.7
billion for the transaction, including certain closing
adjustments. The acquisition is the largest for RBC, surpassing
the $2.16 billion purchase of Centura Banks in 2001.
Earlier, in May 2012, Detroit-based Ally put its non-U.S.
business up for sale to facilitate the repayment of a government
bailout worth $17.2 billion. RBC triumphed over
The Toronto-Dominion Bank
) in securing the deal.
Ally's Canadian unit combined with RBC's existing division to
form RBC Automotive Finance, a portion of the Personal and
Commercial Banking division of RBC. It offers financial services,
including floor plan financing, directly to auto dealers.
Moreover, it provides finance through dealerships to customers.
RBC, which is currently ranked as Canada's largest lender in
terms of assets and market capitalization, emerged as the leading
Canadian automotive financing business provider with the closure
of the deal. Further, it also opened up avenues for RBC to team
with the Canadian unit of General Motors, a leading auto dealer,
to offer subsidized loans to its clients.
Management of RBC views the acquisition of the Canadian auto
financing unit of Ally as a radical growth driver as it increases
the diversity of the auto financing business of RBC in Canada.
Further, it will help develop healthy relationships with dealers,
thus transforming RBC into a chief auto financing company in
Canada. Further, opportunistic acquisitions such as this would go
a long way in bolstering the bank's loan portfolio amidst a
slowdown in Canadian consumer lending.
We believe that the aforementioned acquisition by RBC will
positively impact its financials in the long run. RBC currently
retains a Zacks Rank #3 (Hold). Foreign banks that are performing
Credit Suisse Group
). Both these stocks carry a Zacks Rank #2 (Buy).
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