Royal Bank of Canada
) - also known as RBC - got permission from Canada's Competition
Bureau for the acquisition of the Canadian automotive finance and
deposit business of Ally Financial Inc. RBC shelled out $3.7
billion for the transaction, including certain closing
adjustments. This is the largest acquisition for RBC, surpassing
its $2.16 billion purchase of Centura Banks in 2001.
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The Competition Bureau stated that the deal is unlikely to impair
competition in the Canadian market as RBC's share, subsequent to
the deal, would continue to be modest. However, the anti-trust
regulator announced that the deal is subject to approvals from
the finance ministry as well as the bank regulators. RBC
The Toronto-Dominion Bank
) in securing the deal.
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.
Ally's Canadian unit joined 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, will emerge as the
leading Canadian automotive financing business provider with the
closure of the deal. Further, it opened up avenues for RBC to
team up with the Canadian unit of auto-dealer giant General
Motors to offer subsidized loans to its clients.
Management at RBC views the abovementioned acquisition as a
radical growth driver as it increases the diversity of the auto
financing business of the company in Canada. Further, it will
help develop healthy relationships with dealers, thus
transforming RBC into a chief auto financing company in the
country. Further, opportunistic acquisitions such as this would
go a long way in bolstering the bank's loan portfolio amid a
slowdown in Canadian consumer lending.
We believe that the 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 well include
Credit Suisse Group
). Both these stocks carry a Zacks Rank #2 (Buy).